In Defence of Capitalism
Click for BMS World Mission article

[BMS World Mission asked me to write a defence of capitalism from a Christian perspective for their magazine Mission Catalyst. It appears in Issue 4 2014, alongside a defence of socialism. 

The article is online here and reproduced below. The entire issue is available to read as published here. I may reply to the defence of socialism if time allows.]

I want an end to poverty. I want a social system which operates justly in the general interest without boom and bust. I want to force even the most selfish into the service of others. I want to bring good news to the poor.

We do not live in the Garden of Eden. Scarcity is a fundamental fact. I see a world in which I cannot survive alone. In so far as we enjoy abundance, it is because we share the work of providing for one another.

That sharing of work implies a serious problem: how shall we decide how much of what to produce?

There is a choice: either voluntary ownership, control and risk bearing in the means of production, or collective ownership through the state plus economic planning. We must choose between capitalism or socialism.

Capitalism allocates effort and resources through the price system plus profit and loss accounting. When prices are formed through voluntary exchange of the goods and services people want, a profit shows that value is being created for customers, in their opinion. A loss indicates the collective opinion of society that value is being destroyed.

Only the price system reveals the shifting preferences in the minds of billions of individuals. That is why economic planning by authority always fails. It is why actual socialist societies are highly authoritarian: ever more power is applied in a futile attempt to make planning work.

Understanding our present plight requires insight into the financial system.

Banks lend money into existence. They do not merely lend what people have saved. When a loan is made, bank deposits are created out of nothing. That’s why the UK money supply tripled between 1997 and 2010 from about £700 billion to just over £2.2 trillion.

A society simply cannot triple its money supply in 13 years without profound consequences. Understand that new money went first into the financial system and housing, London and the South East and you have a good explanation for the structural problems in our economy.

We had a chronic oversupply of credit, then sudden undersupply. It is a typical failure of economic planning by authority, a failure of central banking.

The “greedy bankers” argument is inadequate. Thanks to various state-provided guarantees, bankers were gambling with other people’s money, at other people’s risk. Of course they frequently succumbed to temptation. Then governments forced us to bail them out. The injustice of it is palpable.

Look at the cost of energy, the queues on our roads or land use decisions and the story is the same: comprehensive regulation failing to produce the right results. Yes, there is often private investment but it is protected by legal privileges. Even without considering the high level of state spending, it is impossible to sustain the argument that our economy has been too free.

We have preached capitalism but practiced socialism before blaming inevitable failure on the market.

The Peruvian economist Hernando De Soto asked why people in the developing world do not prosper despite being clever, industrious and willing to take risks. Marx believed the problem is that the poor have formal rights but no property.

De Soto demonstrated the opposite. The poorest of the poor in the developing world possess $9.3 trillion worth of land, roughly the size of US GDP and over 70 times the entire world’s foreign aid budget. It turns out the poor in developing countries possess real property but inadequate rights. Co-operation cannot work for the common good without strong property rights and contractual exchange.

We have lived through a deep crisis of the Third Way. How we respond to it is crucial. Is justice and sustained, inclusive prosperity to be delivered through a return to comprehensive economic planning by authority or should we try freedom?

The only system capable of co-ordinating the shared work of providing for one another in this world of scarcity is founded on property rights, voluntary exchange, prices, profit and loss. It is the only system capable of bending even the most selfish to the service of others. Governments must stop deranging it if we are to bring good news to the poor through voluntary co-operation in free markets.

One Comment

  1. Hi Steve

    Got this through twitter and just wanted to say thank you for making the case. As a libertarian christian, I could not agree more. And as someone that left USSR for the UK in 1994, I am pretty clear on the nature of alternatives in this argument. I appreciate brevity in putting forward these kinds of arguments is an asset in itself, but just wanted to raise a couple of further nuances in highlighting a Christian perspective in a case for capitalism.

    The result of so much socialism within our/western society has led to erosion of so many institutions that Christians hold to be essential.

    Charity: over-reaching state over-taxes and redistributed to those it deems ‘needy’, so people turn away from helping the less fortunate, because the state crowded them out of the caring function. As a treasurer of my local church, I was delighted to respond to a hardship funds request from a member of our congregation that would otherwise be at the mercy of the benefit system and may have got lost in it. Through us helping her (& implicitly holding her to account), the lady in question was back making ends meet within 4 months, proud of her striving and with a zest for further success.

    Family/community – whether your gripe is teenage pregnancies or lack of respect in the younger kids towards their elders at school or even at home – it seems very logical that this is linked to the state over-reach. A 14 year old single mother or an unruly teenager rejecting parents and teachers as a bunch of nags can rely on a menu of housing, child and unemployment benefits and no longer see their families as crucial in life decision making. The state has imposed itself as the provider and perverted a bunch of natural incentives with dire consequences of crowding out family/community role.

    Self sufficiency and not being a burden is no longer seen as being an undesirable condition. Moreover, the state fears, resists and subverts voluntary cooperation – whether individuals trading with each other under freedom of contract or organising into corporate bodies. The example of statist EU attitude to leaving markets free is to shriek in horror that they would remain unregulated. . . ! The statist society subsumes every individual or corporate body like a virus, hence nearly 50% of US citizens receiving federal transfers of some kind or another. And corporations complete for political favour/monopolistic protection through lobbying and donations vs. business competition and creativity.

    The bible tells us to cling to God alone for all our needs, which include economic needs. The state has clearly imposed itself as an alternative and if you speak against the state – the reaction tells you that the state sees itself as an idol and criticism/whistleblowing/debate is nothing short of blasphemy or lunacy.

    Christians know not to worship false idols and the bible is full of examples of how costly it can be to do so. It is very typical of a falsely idolised cult leader to become enriched at the expense of its followers. Socialist state is similar, as it elevates itself to an idol. For instance, many in the EU machinery are fanatical about the EU project being worthy of any sacrifice; many in US government believe it is their divine right to ride roughshod over citizens including illegal wars, spying, plundering the nations wealth etc. But like with any false idol, its edifice begins to crumble – so the current economic crisis demonstrates the folly of Statism/Socialism as it demands more and more of society’s resources through hopeless QE, tax, outright plunder of bailouts – all in an effort to survive.

    The evidence of the last 100 years of socialist folly is abundant and arguments for free markets within a strong moral setting of Christianity are overwhelming, but I guess it is up to you as a politician with an understanding of economics and faith to make the masses invested in moving towards reform. I just wanted to acknowledge the sense in your argument and offer my two cents as well as moral support.

    Best regards
    Alexei Garan