Recovering the Case for Capitalism

It's a sentiment I've seen more and more periodically, that we need to defend capitalism. Sounds kind of strange. And it's not just a loss of confidence in markets amid the current recession. It's a broader critique from all over on the existentialism of the current order. On that, Yuval Levin's essay, at National Affairs, is a modern classic. See, "Recovering the Case for Capitalism." At the introduction, Levin prefaces things with a discussion of Adam Smith's moral economy, and it's a nice refresher. But later there's a couple passages really worth pondering, one on the crisis of capitalism in shifting the moral focus away from those most in need of our attention and resources, and second on the element of social capital needed to sustain markets as the essential mover of human freedom. The whole thing's worth printing and saving, but I like these sections:

There is not today, and perhaps there never has been, a serious economic critique of the fundamental tenets of capitalism. There are only moral critiques. Even those opponents of capitalism who proposed alternative systems — like the socialists and communists of centuries past — generally offered moral systems, and not genuine economic theories.

The moral critiques of capitalism have tended to fall into two categories. One, popular with those socialists and communists as well as with many less hostile liberal critics, is that capitalism is unjust to the poor. This meant at first that capitalism degraded the condition of the poor: Some early critics of capitalism contended that the circumstances of workers, especially in manufacturing occupations, were worse than anything the poor had ever experienced before the advent of free-market economics and the Industrial Revolution. But no such case could be sustained today. It is true that inequality persists, of course, but the standard of living of the poor has risen dramatically under capitalism, and the potential for escaping poverty is nowhere greater than in capitalist economies. So today, the focus of such critics is on inequality itself. The condition of the poor, they say, generally does not improve as swiftly as that of the rich, so that the gap between the wealthiest and poorest is expanding — to the detriment of social cohesion and basic justice. There is some truth to this, at least sometimes, but it only amounts to a moral indictment of capitalism if we believe that an equality of conditions is the essence of justice. Otherwise it would be foolish to reject the greatest source of material progress for the poor in human history on the grounds that it allows others to progress even faster. Moreover, it is far from clear that some systemic feature of the market economy holds back the poor. Today in America, the causes of persistent poverty have far more to do with culture than with economic injustice.

But that very point brings us to the second and more serious moral critique of capitalism: that it empties social life of any higher meaning, and so leaves society morally bankrupt even as it grows materially wealthy. Is capitalism in fact just a means of replacing material poverty with spiritual poverty? Is the market a money-making machine that burns social capital for its fuel, leaving in its wake a society of opulent nihilists? ....

Adam Smith expected ... that the market would discipline society and set bounds on our appetites. But as it turns out, our capitalist age is generally not an age of discipline. Far from it: Our society in most respects is a study in unbounded appetite. Our chief public-health problem is obesity. Our foremost social pathologies result from an absence of sexual restraint and personal responsibility. Our popular culture much of the time is a diabolical mix of Babylonian decadence and Philistine vulgarity. And our public life is a gluttonous feast upon the flesh of the future — we use more than we need, spend more than we have, and borrow more than we can pay. For all of our immense wealth, we somehow manage to live far beyond our means. In fact, it is almost fair to say that we lack for nothing except discipline. But as Adam Smith could tell us, discipline above all is what we require to be free. This is no small problem for the case for capitalism.

So what happened? In part, Adam Smith surely understated — and perhaps underestimated — the challenges of sustaining moral norms amid economic dynamism. His expectations rested on an assumption of what to us seems like exceptional social and moral consensus, but what to him was the reality of British life in the late 18th century. The loss of such consensus, brought about in no small part by our capitalist economy itself, is a defining fact of American life in the 21st century. And the challenge of sustaining our way of life in light of that loss is the defining problem of our political economy.

Also, from the conclusion:

Clearly, the case for capitalism requires us to roll back policies that have distorted the market's ability to produce this wealth and cultivate these virtues. The American welfare state needs to be dramatically trimmed and reformed — aimed at helping the needy become more independent rather than making the middle class less so. The cozy relations between government and big business must be rolled back as well, lest the system cease to serve the common consumer, and so lose his allegiance. Friends of capitalism have grown increasingly alert to this danger in the wake of the recent economic crisis, and are beginning to formulate the arguments and develop the means to resist it. The distinction between "pro-market" and "pro-business" will be an important part of the case for capitalism in the years to come, and American history offers useful examples of how it can be drawn responsibly.

Properly understood, the case for capitalism is not a case for license or for laissez faire. It is a case for national wealth as a moral good; for the interest of the mass of consumers as the guide of policy; for clear and uniform rules of competition imposed upon all; for letting markets set prices, letting buyers make choices, and letting producers experiment, innovate, and make what they think they can sell — all while protecting consumers and punishing abuses. It is a case for avoiding concentrations of power, for keeping business and government separate, and for letting those who can meet their own needs do so. It is a case for humility about our ability to know, and therefore about our capacity to do ....

Our purpose is to protect and strengthen our way of life, to stand up for a social and economic system that has lifted billions out of poverty and vastly improved our world in countless ways, and to avert a careless slide toward social-democratic melancholy and decline. This general purpose, of course, has to take form in specific instances and choices, and exactly how the broad conceptual argument for capitalism should be translated into policy is always a matter of case-by-case prudence. But that does not mean that we can do without the broader argument — the argument first framed by Adam Smith, and refined by two centuries of theory and practice, especially in our country. It is an argument for individual freedom amid moral order, and for prosperity sustained by sympathy and discipline. It is an odd modern hybrid: a conservative case for the liberal society. As such, it is also an integral piece of the case for America.

RELATED: At Rasmussen, "60% Say Capitalism Better Than Socialism" (via Memeorandum).