The Moral Case for Capitalism

Here’s the video of my speech, “The Moral Case for Capitalism,” that I gave at the NFRA National Convention in Reno, NV last Saturday. The videos are divided into three parts. The text of the speech (including references) is pasted below.

Thank you, Rod, for that kind introduction. It’s good to be here in Reno today, and I’m excited to have this opportunity to speak to all of you. I’d like to take a minute to thank the NFRA executive board for inviting me, and Executive Vice President Chris Brown for arranging for me to be here. And thanks to all of you for getting up early to join me. I know how tempting it must have been to sleep in or stop off at the slots. I didn’t feel any temptation to hit the slots, though. They gave me a room on the 13th floor. I took that as a sign to stay out of the casino and practice my speech.

I’m here to make the moral and biblical case for capitalism. But before I dive into my topic, let me give you some additional background to explain why I’m so passionate about this topic. I’m not from Washington and I’ve never spent time inside the Beltway. My entire career has been in California, on the opposite side of the country from DC. Early in my career I quit a stable job in finance to join a little-known Silicon Valley startup called PayPal. Over the years that followed—as I detailed in my book, The PayPal Wars—our team took the dot-com from losing $10 million a month to profitability, an initial public offering, and an acquisition by eBay in late-2002. Soon after eBay purchased PayPal, I left to start my own company, World Ahead Media, a publishing startup with a conservative and free market focus. World Ahead was acquired by WorldNetDaily last year and renamed WND Books.

The reason I mention all of this is to make the point that I’ve seen firsthand what entrepreneurship in a capitalist economy can accomplish. I’ve seen how jobs are created, how good companies are built, and how the amazing power of the free market can be harnessed. So it disturbs me to watch as the free enterprise system comes under attack from liberal politicians in Washington DC, people who know nothing about capitalism, except that they want to control it.

During his campaign for president last year, Barack Obama told John Harwood of CNBC that he believed in capitalism. He said, “I am a pro-growth, free market guy. I love the market. I think it is the best invention to allocate resources and produce enormous prosperity for America or the world that’s ever been designed.”[1]

But since President Obama was sworn in last January, the federal government has expanded its control over private enterprise on a scale not seen in several generations. Under the guise of solving the economic crisis created by the mortgage meltdown, Washington DC is now vastly increasing its involvement in the banking, automotive, energy, and health care industries. New bureaucracies are being proposed, and Congress is on a spending rampage. The federal deficit is expected to average over $1 trillion per year for the next decade. Congress is even debating a bill that would “allow the government to create a detailed set of standards for cybersecurity, as well as take over the process of certifying IT technicians.”[2]

Yes, really. Washington wants to run cybersecurity. And we thought Windows Vista was bad!

In the words of the Wall Street Journal’s Kimberly Strassel, the Beltway has manufactured a “creative history” that says greedy bankers got out of hand so we need more regulations and less freedom.[3]

In this atmosphere, it’s not surprising that Ron Bloom, the White House’s manufacturing czar, recently said in a speech that, “We know that the free market is nonsense. We know that the whole point is to game the system… We kind of agree with Mao that political power comes largely from the barrel of a gun.”[4]

While one White House czar is quoting Mao Tse Tung, another czar is micromanaging executive salaries. And another czar is overseeing the auto companies. There are czars for health care, information technology, and general technology. There are a couple of economic czars.[5] And there was a czar for green jobs, but that spot’s vacant now.

It seems like every aspect of the economy is suddenly being managed by DC bureaucrats. While I’d like to think that these policies reflect only the sentiments of extreme left-wing ideologues in Washington, the truth is that capitalism is under fire more broadly. An April poll by Rassmussen revealed that “only 53% of American adults believe capitalism is better than socialism.”[6] One-fifth of all Americans say that socialism is better, and 27% aren’t sure. Adults under-30 are evenly split, with 37% opting for capitalism vs. 33% for socialism.

Earlier this year, Newsweek ran a cover story entitled “We Are All Socialists Now.” While that’s mostly wishful thinking on the part of Newsweek’s editorial staff, the unpleasant truth is that capitalism has a major image problem. And unless those of who believe in traditional values and a limited government speak out and rebut the critics of capitalism, the situation will not improve.

Part of that answer is properly explaining what caused last year’s financial crisis. To be blunt, John McCain and George Bush failed to do this, hence the Left’s “creative history” has become the accepted narrative. Since NFRA members are an educated group, I won’t spend much time recounting how the federal government—through the Community Reinvestment Act, Fannie Mae, and Freddie Mac—distorted the mortgage market and helped create the sub-prime time bomb that detonated over the past couple of years. Stanford economist John Taylor, in a short book entitled Getting Off Track, also demonstrates how bad monetary policy by the Federal Reserve created the real estate bubble.

While it’s important to understand how bad fiscal, regulatory, and monetary policy created the financial crisis, defending the free market requires more than a “policy wonk” response. Demonstrating that government meddling in the economy had unintended consequences is important, but it’s not the same as articulating the virtues of the free market.

The critique against capitalism goes far beyond just blaming it for the current recession. Critics today go so far as to say that the free market is contrary to the Bible, that it is cruel, exploitative, and the cause of so much poverty and suffering around the globe. In a word, they are saying that capitalism is evil.

It’s important to answer this accusation. Today we have an entire generation of voters who do not remember Ronald Reagan, much less the harm collectivism did to the countries behind the Iron Curtain. Capitalism does not have the moral high ground in their eyes, nor does socialism seem inherently wrong. In our current political and cultural environment, the argument for the free market needs to be made afresh. Fortunately, it’s an easy one to make. Capitalism is the most moral and fair economic system ever devised by man. In short, capitalism is good, and proving this is not hard. I’m going to present three points that make this case:

  • First, capitalism was inspired by biblical principles; it’s an economic system based on the teachings of God’s word.
  • Second, capitalism runs on win-win transactions; it’s an economic system that produces a positive sum gain and rewards those who help their fellow man.
  • And third, capitalism has blessed the world; it’s an economic system that has lifted billions out of poverty while changing the course of human history.

We’ll address all three points in turn.

Point #1: Capitalism was inspired by biblical principles.

Let me emphasize that no economic model is specifically prescribed in the Bible. In the Old Testament, God did articulate a number of rules for the Hebrew economy, but the New Testament doesn’t contain directions for how countries should set up their economic systems. The teachings of Christ and his followers are primarily concerned about the message of eternal salvation. However, the origins of the free market are undeniably rooted in principles contained in God’s word.

Unlike Marxism, which was dreamed up in the heads of philosophers, capitalism came about in a hodge-podge fashion in England during the 17th through 19th centuries and gradually spread through the Continent, replacing mercantilism and what was left of feudalism as Europe’s dominant economic system. But even though it has decentralized origins, the reasoning behind the free market comes from one primary source: the Good Book.

Economist Joel Mokryr, in The Lever of Riches, writes: “Western Christianity contained the seeds of future technological progress.” Mokyr and other economic historians, including Walter Russell Mead, document how Christian beliefs coming out of the Reformation led to the advent of capitalism. Some of the most prominent ones include:[7]

  1. Private Property: The Bible establishes property rights as belonging to all people, regardless of power, so much so that it’s one of the Ten Commandments. (“Thou shall not steal.”)
  2. Humanity’s Role in Creation: The Bible distinguished between the Creator and his creation, liberating humanity from the fear of pantheism and superstition, empowering us to make use of the resources around us.
  3. Hard Work and Good Stewardship: The Bible calls for honest labor and a modest lifestyle. This promotes savings and investment, which creates a capital pool to finance new ventures in a free market.
  4. “The Faith of Abraham:”Abraham is known as a man of faith for following God’s call to leave his familiar settings and journey to an unknown land. To people this meant it was OK to strike out on a new path, to follow God’s calling into a new area or a new profession, and break with the traditions of the past.
  5. Optimism for the future tempered by original sin. The Bible says we’ll never have a utopian paradise on this earth, but the world can be made better by exercising God’s principles.

These are just some of the Christian beliefs that inspired this new economic system. To be sure, other factors, especially the political fragmentation of Europe, set the table for capitalism to spread, however it was the Bible that laid the intellectual framework for the free market. From property rights to the use of natural resources, from the call to innovate to the concept that the individual isn’t bound by tradition, capitalism came from a distinctly biblical heritage.

Point #2: Capitalism runs on win-win transactions.

The building blocks of capitalism are voluntary transactions by buyers and sellers. When two parties voluntarily transact with each other, both are better off, even if they’re just looking out for themselves. Adam Smith, writing in The Wealth of Nations, famously noted that: “It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest.” Even if a selfish, imperfect person is only looking out for himself, he’ll have to offer some benefit to another person if he’s going to get them to agree to transact.

Jay Richards illustrates this in his recent book, Money, Greed, and God.[8] He recounts the “trading game” he played in his 6th grade class. In this example, the teacher hands out dime store toys randomly to all the children. The kids are then asked to write down, on a scale of 1 to 10, how much they liked what they received. After the teacher tallies and averages the scores, she gives them the option to trade their toys. No one is forced to do so, but everyone has the right to negotiate voluntary trades with their classmates. After the bartering is done, the teacher has the kids write down their satisfaction scores again, and this time the average is higher, demonstrating how voluntary transactions are win-win.

In capitalism, buyers and sellers, guided by what Adam Smith called the “Invisible Hand,” use freedom to create value for both parties. But, as economist Joseph Schumpeter would later point out, it’s innovation that creates the most value. There’s a tremendous financial incentive to come up with a new product, invention, or method that shakes up the marketplace and benefits as many people as possible. Schumpeter called this process “Creative Destruction,” saying that it “incessantly revolutionizes the economic structure from within, incessantly destroying the old one.”[9]

Creative Destruction is what has led the economy forward, and made the capitalist system one of constant innovation. While socialist countries often struggle just to feed their people, nations with economic liberty have produced an explosion of knowledge, technology, and innovation over the past century.

Point #3: Capitalism has blessed the world.

Finally, it must be emphasized that capitalism is more than just a system based on biblical principles, comprised of win-win transactions. The free market has unleashed economic growth and global prosperity in a way never before seen in human history. In short, this biblically inspired system is a blessing to the world.

Looking back across the millennia, the history of the world is one of economic stagnation. Before capitalism, economic growth and rising standards of living were not the norm.

Angus Madison, professor emeritus at the University of Groningen in the Netherlands, has estimated the world’s historic economic output. Before capitalism, in the 5 centuries between A.D. 1000 and 1500, the world economy took 500 years to double in size. But as capitalism began to spread in Europe during the 19th century, the world economy nearly tripled in just 80 years. And that growth further accelerated as the free market spread; during the 20th century, the world economy grew by 17 times.

We’ve certainly been blessed with prosperity from capitalism here in United States. GDP per worker in America rose from about $15,000 in 1900 to $65,000 in the year 2000.[10] And this prosperity has been widespread. While not everyone shares equally in the outcome of the free market, U.S. income levels for the lowest quintile have risen over time. And poor households in a capitalist country like ours have done very well by historical standards:

  • 99% of poor households in the US have a refrigerator.
  • 97% have a color TV, and 63% have cable.
  • 73% have a car, and 31% have two or more cars![11]

But it’s not just here in America that we’ve seen the blessings of capitalism. Between 1970 and 1990, the number of people living below the absolute poverty line declined from 38% of the world’s population to 26%, even as the global population grew substantially during that time.

If anything, what’s keeping certain parts of the world poor is too little capitalism! Peruvian economist Hernando de Soto estimates that a lack of property rights robs Third World citizens of over $9 trillion of wealth.

The growth of income caused by capitalism has blessed the world by creating a rising standard of living and, as result, increased life expectancy. According to Gapminder.org, in 1850 the average life expectancy in nearly all countries was between 30 and 40 years. (That would make me a senior citizen!) Today, most countries have life expectancies between 65-80 years.

To summarize, capitalism has introduced widespread economic growth. It has lifted billions of people out of poverty. It has fed the hungry. It has created new technologies. It has lengthened people’s lives. Capitalism has blessed the world.

This response to the critics of the free market is powerful. While no one should claim that capitalism is perfect—no human institution is perfect!—it is the best economic system available to man. The free market is based on biblical principles, it runs on win-win transactions, and it has improved the plight of people all around the world.

The same cannot be said of centralized economies. Call it communism, socialism, or whatever you like, but the results of experiments in economic centralization are always the same: stagnation, suffering, and quite often death.

The Black Book of Communism, published by Harvard University Press, estimates that nearly 100 million citizens of communist countries were killed by the own governments in the 20th century. 100 million lives snuffed out by an economic system that puts massive power into the hands of elites.

The Bible says that humanity is fallen and sinful, so it’s no wonder that a system that centralizes power results in tragedy. Capitalism disperses power, uses a decentralized marketplace, protects property rights, and allows humans—who are made in the image of their Creator—to be creative. Socialism brings calamity, but capitalism promotes flourishing.

So let’s make this case to our fellow Americans. Let’s answer the critics who call for more government control in our lives. Let’s articulate why the free market is virtuous.

Capitalism is one of the most important institutions in human history. It’s worth fighting for!

Thank you.


[1] http://www.swamppolitics.com/news/politics/blog/2008/06/obama_willing_to_defer_some_ne.html

 

[2] http://www.foxnews.com/politics/2009/04/21/proposed-heavy-restrictions-internet-freedoms/

[3] http://online.wsj.com/article/SB123751023925990683.html

[4] http://www.breitbart.tv/obama-czar-agrees-with-mao-too-and-thinks-free-market-is-nonsense/

[5] http://noisyroom.net/blog/2009/07/22/obamas-czars-listing-update-072209/

[6] http://www.rasmussenreports.com/public_content/politics/general_politics/april_2009/just_53_say_capitalism_better_than_socialism

[7] Sources: Joel Mokyr, The Lever of Riches, pp. 201-205. Jay Richards, Money, Greed, and God, pp. 145-151.  Walter Russell Mead, God and Gold, pp. 191-247

[8] Jay Richards, Money, Greed, and God, pp. 60-61.

[9] Joseph Schumpeter, Capitalism, Socialism, & Democracy.

[10] http://www.j-bradford-delong.net/TCEH/2000/TCEH_2.html

[11] http://www.heritage.org/Research/Welfare/bg2064.cfm

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4 thoughts on “The Moral Case for Capitalism

  1. There is no doubt that capitalism creates both affluence and independence and not just for the elites, but for the masses. The huge progress made during the past 200 years has all been centered in those few nations with free economies. Those nations without free economies have almost universally stagnated while the free nations passed them by.

    The lessons of history–seen by examining the actual systems tried in the past–show clearly that little or no progress occurred in those nations where small elites managed the nation’s economy from on high. It was only where the many free common people of a nation were allowed and empowerd to act, innovate, and create vibrant businesses and economies that wide-spread wealth was accumulated. This fact is a fascinating historical record dating back thousands of years.

    It is important to note that democracy was not always essential. Enlightened Princes of the Renaissance, and today in Dubai, Singapore, Hong Kong, and Bahrain, allowed free economies with minimal regulation and taxation, while still keeping an authoritarian hand on government. It is the free market and free ecomony with few bars to entry that ignites the genius of people–not the power to vote. Only when free economies grow old, and accumulate layers of new “managers” at the top, does their decline set in.

    • @bill greene, those are great points. Capitalism helps the masses on a scale that no other economic system can match. It does this by promoting growth, which is only possible in a system with freedom, strong property rights, and decentralized decision-making.

  2. Pingback: Is Entrepreneurship a Divine Calling? « Eric M. Jackson's Blog

  3. Eric–I liked your section above on how Christianity empowered capitalism. Certainly the priciples of Christianity, especially after the Reformation, became a direct positive influence encouragiung both individual freedom and capitalism. However, this source of strength goes back further to around 1100AD when Christian monks founded numerous European universities. Mostly Franciscan and Dominican, these monks applied their scholarly tradition to create the schools that started the scientific revolution.

    Individual friars like Grosseteste and Albert, followed by Roger Bacon and Thomas Acquinas, initiated the formal classroom study of chemistry, biology, and logic that opened the eyes of Western Europeans tothe physical sciences. And their ability to establish the truth of the physical laws of the secular world, while maintaining religious Faith, gave them an edge over all other parts of the world where scientific thought was suppressed by religious and philosophical precepts. Islam is still playing that negative role wherever it is practiced.

    It is unfortunate that many of the West’s elites now eschew Christianity because we need it — it is a very important pillar of successful capitalism. Its absence was revealed in 2008-9, when the speculators on Wall Street, collaborating with their allies in Washington’s seats of power, revealed the wide-spread corrupt practices that led to the recent financial collapse in the banking and financial sectors.

    I believe John Adams claimed that free nations can only exist when they are supported by honest and moral citizens who assume their individual responsibilty for ethical conduct. After 200 years, too many have lost their Faith, America is losing its innocence, and we are without that foundational strength.

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