Insightful article on capitalism (particularly for Belloc)

[veritatem_dilexisti]

Economic Heresies of the Left
Jun 29, 2009
Michael Novak
What exactly is in Benedict XVI’s new encyclical on the economy and labor issues is not yet known. Catholic leftists and progressives, though, are already trembling with excitement. Three glaring errors have already appeared in these heavily panting anticipations.

An accurate presentation of real existing capitalism requires at least three modest affirmations:

1) Markets work well only within a system of law, and only according to well-marked-out rules of the game; unregulated markets are a figment of imagination.

2) In actual capitalist practice, the love of creativity, invention, and groundbreaking enterprise are far more powerful than motives of greed.


3) The fundamental systemic motive infusing the spirit of capitalism is the imperative to liberate the world’s poor from the premodern ubiquity of grinding poverty. This motive lay at the heart of Adam Smith’s important victory over Thomas Malthus concerning the coming affluence—rather than starvation—of the poor.

Since the origins of modern capitalism around 1780, more than two-thirds of the world’s population has moved out of poverty. In China and India alone, more than 500 million have been raised out of poverty just in the last forty years. In almost every nation the average age of mortality has risen dramatically, causing populations to expand accordingly. Health in almost every dimension has been improved, and literacy has been carried to remote places it never reached before.

Whatever the motives of individuals, the system has improved the plight of the poor as none ever has before. The contemporary left systematically refuses to face these undeniable facts.

Fr. Thomas Reese, S.J., one of our most reliable leftist bellwethers, has recently opined that Benedict XVI’s new encyclical will cry out for more regulation, rather than unregulated markets. Further, the pope will denounce greed and cry out for more attention to the urgent need to aid the world’s poor.

Reese thinks these are anticapitalist positions. That is ridiculous. They lie at the heart of why capitalism has worked as well as it has to liberate the poor—first in the United States and Europe, then in one continent after another, as it is now doing in almost all areas of Asia.

Fr. Reese says that the pope will blame the greed of U.S. bankers for the current global financial crisis. While many institutions, including banks, failed in their basic duties, government action was the principal villain in the 2009 debacle. It was the federal government that forced banks to make sub-prime loans to poor families (who were known to be unable to pay their mortgages on a regular basis). It threatened banks that did not invest in poisonous packages of mortgages, vitiated by the bad ones.

The federal government even guaranteed the work of two huge quasigovernment mortgage companies—Fanny Mae and Freddy Mac—that wrote more than half of all mortgages during the fateful years. Of course, when the house of cards fell, government was not there to make good on its guarantees—or even to accept responsibility for its own heavy-handed actions.

For at least ten years before the disaster finally occurred, my colleagues at the American Enterprise Institute had been warning of the government abuses that were heading toward this calamity. Partisans of big government refused to listen.

For moralists, it is essential to see how often (not always) government itself sins grievously against the common good, out of a lust for power and domination over others. Furthermore, government often (not always) generates foolish and destructive regulations, and often dispenses justice that winks rather than justice that is blind. Government is more frequently the agent of injuring the common good than the ordinary lawful actions of free citizens. During the twentieth century, governments too often destroyed the common good of their citizens for years to come.

In the United States, the existing code of federal regulations for businesses is enormous. Title 12 covering “Banks and Banking” runs to 4,786 pages; Title 15 on “commerce and Foreign Trade” is 1,941 pages; Title 16 on “Commercial Practices,” 1,600 pages; Title 17 on the “Securities and Exchange Commission,” 2,708 pages; and Title 31 on “Money and Finance: Treasury,” 1,917 pages.

The total number of pages in this code is 12,592. Laid out end to end, the volumes of the code extend for 2.35 miles. If you count the pages in feet (30 inches per linear foot is the standard measure) the code runs for six linear miles.

An unregulated market indeed! The real world of American capitalism is more like Gulliver bound down by thousands of threads. Many of the regulations are out of date, obsolete, costly, destructive, and—in their actual effects—counter to the very intentions that gave them birth. But regulation there is, and regulation there must be. Without rules, American capitalism cannot function.

As for greed, Max Weber pointed out that greed is present in every age and every system of human history. Yet greed was rather more socially central in ancient times than today, and played a much more decisive role. And nowadays, greed flourishes most wherever government power is concentrated.

By contrast, in enterprise societies such as the United States, it is possible to become rich—even very rich—by methods that focus on innovation rather than greed. The great universities of the Middle West and Far West, were founded expressly to give spur to new inventions in mining, agriculture, and other technical fields. Texas A & M, Iowa State, Wisconsin State, Oklahoma State, and scores of others have been the hothouses of ideas in agriculture, engineering and electronics, geology, mining and drilling—ideas rendered practical by the makers of many fortunes. They have mightily served the common good of Americans and the entire human race.

As John Paul II wisely commented in Centesimus Annus, practical knowledge is the main cause of wealth today. Ideas rather than great landholdings are the main form of wealth in our time. As both Caesar and Cicero long ago observed, although it seems as though community ownership ought to serve the common good best, in practice private property does. The right to private property has long been justified by virtue of its superior service to the common good.

And in the United States, scores of entrepreneurs are ready to risk losing everything they have in order to create something new, create something that will make life better for their fellow men. Henry Ford failed repeatedly in several businesses before he finally made the Ford Motor Company the great model for business that it once was. (It was the first establishment in history to pay its laborers a handsome wage of five dollars per day. At the time, ordinary lawyers averaged about $1500 per year. Ford’s motives, of course, were not altruistic; he wanted his workers to purchase the cars they helped build.)

As Oscar Handlin once noted, almost every industrialist who built a new railroad North and South in the United States in the nineteenth century prospered. Nearly every tycoon who tried to build an East–West railroad lost money. What spurred men to keep trying had less to do with greed that with the sheer romance of conquering the deserts and the Rockies. The element of romance in business is simply not grasped by dialectical materialists.

In brief, nearly all the leftish critiques of American and other forms of capitalism are empirically false. They do not fit the actual facts. But these three—greed, unregulated markets, and the idea that capitalism makes the poor of the world worse off—are especially tiresome, and very far from reality.

Will all those good Catholic leftists who announce their own enthusiastic preference for the poor actually help to liberate the poor, even by a little? Will their anticapitalist policies help alleviate poverty? The historical record offers very little evidence for that contention.

And yet wherever a healthy, inventive capitalism goes, the poor soon rise by the millions out of poverty, come to better physical health, and advance into higher education.

You can look up the record.

Michael Novak, a member of the editorial board of First Things, holds the George Frederick Jewett Chair in Religion and Public Policy at the American Enterprise Institute. His most recent book is No One Sees God (Doubleday, 2008).

[Heinrich]

The whole article in and of itself deconstructs itself(from a Catholic point of view). Its thesis is that materialism is the pursuit we should aspire to. Capitalism is part of the evil ideal of a heaven on earth. Scripture itself states there will always be the poor. 

Futhermore, are we not, as Catholics, able to accept poverty? I am. I support a family on 37,000USD per year as a charter school teacher. I have working plumbing, a firm roof, beds for all the kids(and dogs and cats), a place to drink my hot koff'ee in the morning and my ice cold brewskies in the evening. Best of all, I live .9 mile away from my FSSP apostolate, have a solid  group of parishers as friends here in the Rocky Mountains. I don't need to be lifted up out of anything materially; I just need to be delivered from my sins.

Belloc is going to tear this up.

[Anthem]

Capitalism may have lifted people out of poverty, but it placed them and all of us on a precipice from which we are only now beginning to fall.  Capitalism has led us to a point of unavoidable worldwide economic collapse.  Free market schmee market.  Capitalism, regulated or otherwise, is predicated on continual growth which is predicated on ever increasing supplies of cheap, easily exploited, energy.  Those days are over, me fellows.  Relocalization and distributism will hopefully be discovered at the bottom of the cliff, but a lot of people are going to get squashed when we hit the ground.







edit:speellling

[Mhoram]

Capitalism, regulated or otherwise, is predicated on continual growth

No, it's not.  If I have a dairy cow and you have an apple tree and our neighbor is a fisherman, and we all trade these things back and forth to each other, we're capitalists.  No "continual growth" required.  Now, if we three elect a fourth neighbor to be our president, and he taxes us and establishes a currency and a federal reserve system, and we all borrow money from it to expand our herds and orchards every year beyond what our markets require, that's another story, but it's not capitalism anymore.  What you're talking about is usurious capitalism, or corporatism, or Wall Streeetism, or something like that.  Maybe we need a new word for it.

Equating the US financial system with capitalism is like equating Soviet Communism with the way Jesus's disciples were required to give away their property.  They kinda sound the same when you first look at them from a certain angle, but they're very different.

[CollegeCatholic]

Capitalism, regulated or otherwise, is predicated on continual growth

No, it's not.  If I have a dairy cow and you have an apple tree and our neighbor is a fisherman, and we all trade these things back and forth to each other, we're capitalists.  No "continual growth" required.  Now, if we three elect a fourth neighbor to be our president, and he taxes us and establishes a currency and a federal reserve system, and we all borrow money from it to expand our herds and orchards every year beyond what our markets require, that's another story, but it's not capitalism anymore.  What you're talking about is usurious capitalism, or corporatism, or Wall Streeetism, or something like that.  Maybe we need a new word for it.

Equating the US financial system with capitalism is like equating Soviet Communism with the way Jesus's disciples were required to give away their property.  They kinda sound the same when you first look at them from a certain angle, but they're very different.

Exactly.  The confusion between "free market capitalism" and what we have today is *not* the same thing.

[didishroom]

Capitalism!

Come on! Shake it, girls!
 

[HailGilbert]

I can't wait for Belloc to take this to the mat! Go dude!

[Anthem]

Capitalism, regulated or otherwise, is predicated on continual growth

No, it's not.  If I have a dairy cow and you have an apple tree and our neighbor is a fisherman, and we all trade these things back and forth to each other, we're capitalists.  No "continual growth" required.  Now, if we three elect a fourth neighbor to be our president, and he taxes us and establishes a currency and a federal reserve system, and we all borrow money from it to expand our herds and orchards every year beyond what our markets require, that's another story, but it's not capitalism anymore.  What you're talking about is usurious capitalism, or corporatism, or Wall Streeetism, or something like that.  Maybe we need a new word for it.

Equating the US financial system with capitalism is like equating Soviet Communism with the way Jesus's disciples were required to give away their property.  They kinda sound the same when you first look at them from a certain angle, but they're very different.

Oh my goodness.  You are describing bartering, not capitalism.  Capitalism contains, by definition, profit.  If five fish are worth 20 apples and that is the trade to which I agree, I have made no profit.  Capitalism does not exist without profit.  Profit means getting back more than one put in.  Capitalism also requires the use of money and lending money at interest.  Interest on money, by definition, means the lender earns money while no new work is performed.  To state it another way, lending money requires people to do extra work for the same amount of money in order have the privelege of having more money than they would otherwise have at a certain point in time.  Without interest (or return on investment) capitalism cannot exist.  Interest cannot exist without profit.  The unfortunate thing is that interest (and therefore profit) requires growth, as I stated above.  Capitalism requires more people buying more stuff for more money, continuously, until there is no more to be had.  Thermodynamics tells us that more *anything* requires more energy.  Now, once this all collapses, and it will, we may go back to a system where the energy production is sustainable and the "profit" will also be stable.  That means we consume and produce enough energy to support the system without going beyond our capacity.  We are well beyond that point now.

[didishroom]

I can't wait for Belloc to take this to the mat! Go dude!

Belloc? Please...the guy only knows how to cut and paste articles and then insult people for not being Distributionist.

[ComingHome]

Belloc? Please...the guy only knows how to cut and paste articles and then insult people for not being Distributionist.

As a matter of current fact (hopefully not for long), your statement would more aptly describe me at this point in time, but not a worry there, I won't do that.
Let this overworked    grown-up    father & husband get a bit of time into the topic in question and I could discuss it.  (Sadly, it won't happen anytime in the near future).

So, I hope Belloc gets around here soon, too. 

[Anastasia]

Oh my goodness.  You are describing bartering, not capitalism.  Capitalism contains, by definition, profit.  If five fish are worth 20 apples and that is the trade to which I agree, I have made no profit.  Capitalism does not exist without profit.  Profit means getting back more than one put in.  Capitalism also requires the use of money and lending money at interest.  Interest on money, by definition, means the lender earns money while no new work is performed.  To state it another way, lending money requires people to do extra work for the same amount of money in order have the privelege of having more money than they would otherwise have at a certain point in time.  Without interest (or return on investment) capitalism cannot exist.  Interest cannot exist without profit.  The unfortunate thing is that interest (and therefore profit) requires growth, as I stated above.  Capitalism requires more people buying more stuff for more money, continuously, until there is no more to be had.  Thermodynamics tells us that more *anything* requires more energy.  Now, once this all collapses, and it will, we may go back to a system where the energy production is sustainable and the "profit" will also be stable.  That means we consume and produce enough energy to support the system without going beyond our capacity.  We are well beyond that point now.

Not really: capitalism, in essence, not really a "system" at all, since all decisions are simply made between buyer and seller. There's no requirement of profit or of money, necessarily, being part of the exchange. All the free market means is, that government has no place in a business transaction. That's why we really cannot speak of a "capitalist government" , because a free-market capitalism  bypasses state regulation altogether. So much for the theoretical, now for the practical. Ask yourself: when I want to buy/trade something with my neighbor, do I trust my government to step in and decide what is "fair"? Set the terms of the exchange in question? Have you had much experience with state bureaucracy?

[Anthem]

Not really: capitalism, in essence, not really a "system" at all, since all decisions are simply made between buyer and seller. There's no requirement of profit or of money, necessarily, being part of the exchange. All the free market means is, that government has no place in a business transaction. That's why we really cannot speak of a "capitalist government" , because a free-market capitalism  bypasses state regulation altogether. So much for the theoretical, now for the practical. Ask yourself: when I want to buy/trade something with my neighbor, do I trust my government to step in and decide what is "fair"? Set the terms of the exchange in question? Have you had much experience with state bureaucracy?

I am afraid you are very wrong.  Capitalism arose from mercantilism.  While you may wish to define capitalism in the sense that you have, this is not the accepted definition.  You describe something very different, and much more simplistic, than capitalism.  Defenders of capitalism often do such.  What you describe, while very idealistic, is far removed from the system we know as capitalism.  Certainly it is better for dealings between individuals to be unfettered by government influence.  I heartily agree.  However, capitalism, while espousing such (lack of government interference) as one aspect of the ideal, requires that capital be "created".  Creation of capital requires something.  That something is input from the outside.  Whence does capital arise?  Capital is the "interest", return on investment, wealth above and beyond the work input, that exists in the system.  Capital is the excess.  As in all systems, chemical or economic, "extra" anything requires input from the outside.  In our system, that has been provided by cheap energy.  Please prove me wrong, if you are able.

[Anastasia]

Not really: capitalism, in essence, not really a "system" at all, since all decisions are simply made between buyer and seller. There's no requirement of profit or of money, necessarily, being part of the exchange. All the free market means is, that government has no place in a business transaction. That's why we really cannot speak of a "capitalist government" , because a free-market capitalism  bypasses state regulation altogether. So much for the theoretical, now for the practical. Ask yourself: when I want to buy/trade something with my neighbor, do I trust my government to step in and decide what is "fair"? Set the terms of the exchange in question? Have you had much experience with state bureaucracy?

I am afraid you are very wrong.  Capitalism arose from mercantilism.  While you may wish to define capitalism in the sense that you have, this is not the accepted definition.  You describe something very different, and much more simplistic, than capitalism.  Defenders of capitalism often do such.  What you describe, while very idealistic, is far removed from the system we know as capitalism.  Certainly it is better for dealings between individuals to be unfettered by government influence.  I heartily agree.  However, capitalism, while espousing such (lack of government interference) as one aspect of the ideal, requires that capital be "created".  Creation of capital requires something.  That something is input from the outside.  Whence does capital arise?  Capital is the "interest", return on investment, wealth above and beyond the work input, that exists in the system.  Capital is the excess.  As in all systems, chemical or economic, "extra" anything requires input from the outside.  In our system, that has been provided by cheap energy.  Please prove me wrong, if you are able.

Not accepted by whom? The literature of economics accepts that free market capitalism is defined as lack of state interference in transactions. If you wish to argue against some other economic policy, by all means do so, but the terms need to be defined. "The system we know as capitalism" is not, as others have pointed out, the same thing as free market capitalism. And practice has abundantly proved that markets function better in a free, non-government regulated market. If we agree that the government should not be concerned, what are we arguing about?
To address the question of the creation of capital, I'm not entirely sure what your argument is. Yes, input from other geographic areas is required (I think this is what you're saying with the cheap energy part?),  but this is offset from importing goods to those areas in return. If I misunderstood the argument, please correct me. Bear in mid, too, that return on investment does not have to be strictly money with interest: if I produce, say, apples, but I need gold to go to the market and buy spices, the return on my investment is that I get what I need for something I have an excess of.
 

[maldon]

“Economic Heresies of the Left”
What is with the religious preoccupation with economic and social issues (as opposed to doctrinal and cultic issues)? Are there such things as “economic heresies”?

“In actual capitalist practice, the love of creativity, invention, and groundbreaking enterprise are far more powerful than motives of greed.”
This is manifestly a pile of nonsense. First of all, the author does not define greed. Second, he implies that there is nothing between “love of creativity, invention, and groundbreaking enterprise” and “motives of greed.” There is such a thing as wanting to make money to support yourself and your family. The latter is neither “love of creativity, invention, and groundbreaking enterprise,” nor is it “greed”. It is work, the duty God put us on this earth to do. Thirdly, what the heck is the meaning of “motives of greed”? Greed is one of the seven capital sins; it is a motive for disordered thoughts, words, and deeds. There is no motive for greed. Greed is a motive for evil
.
“The fundamental systemic motive infusing the spirit of capitalism is the imperative to liberate the world’s poor from the premodern ubiquity of grinding poverty.”
Rubbish. The fundamental systemic motive infusing capitalism is the imperative to make a buck or die of starvation. Why can Catholics not admit that it is a good thing to work for money? I know some businessmen. None of them are getting up in the morning thinking about liberating the world’s poor from starvation. And you know what? That is all right. They can get up hoping to make a million bucks, and that is fine; it is not a sin.

“Since the origins of modern capitalism around 1780, more than two-thirds of the world’s population has moved out of poverty”
A)   Define poverty.
B)   What were they in before? They were all in “poverty”? (Really need this definition)
C)   What have they moved ‘into’?

.” In China and India alone, more than 500 million have been raised out of poverty just in the last forty years.”
A)   Of course they did. China illegally operates with a devalued currency to steal jobs from the rest of the world.
B)   Is China a capitalist country?
C)   Maybe it is also easier to spread around the ‘wealth’ if you kill enough babies. . .

“ In almost every nation the average age of mortality has risen dramatically, causing populations to expand accordingly. Health in almost every dimension has been improved, “
Really? Then why are we so worried about our heart/diabetes/cancer/ etc. etc. problems? Why are we always telling people to eat like they do in the third world? And again, how are we defining health? Does it include mental health? There are some beautiful statistics out on mental health . . .

“and literacy has been carried to remote places it never reached before.”
Yes, a new kind of literacy. Again, definitions, please! The new literacy allows everyone to read the title of a sitcom, but people are less critical than they used to be.

“Fr. Reese says that the pope will blame the greed of U.S. bankers for the current global financial crisis”
If he does so, and regardless of whether he is right or wrong, I sure hope he reminds us that finance is not his field, nor are we to take him too seriously if he is not discussing matters of faith and morals. And I still would like to know how come we are not getting more from him on faith and morals.

“For moralists, it is essential to see how often (not always) government itself sins grievously against the common good, out of a lust for power and domination over others”
Government sins? Who goes to hell when “government itself” sins? Have any of you ever seen a “government itself”? And if we are talking about “government,” what does government “lust” look like? (Please, no Bill Clinton jokes). And how on earth can we reach the knowledge that a “government” has acted out of “lust for power’ and “domination over others”? Is it just me, or is the language here just loose, vague, imprecise and downright sophistic?

“As for greed, Max Weber pointed out that greed is present in every age and every system of human history. Yet greed was rather more socially central in ancient times than today, and played a much more decisive role. And nowadays, greed flourishes most wherever government power is concentrated.”
Well I am glad we have Weber!  Hello! Greed is in the human sinner, not in a “system.” And what kind of evidence do we have to support the notion that “greed was rather more socially central in ancient times than today, and played a much more decisive role”? “Rather more”?

“As John Paul II wisely commented in Centesimus Annus, practical knowledge is the main cause of wealth today. Ideas rather than great landholdings are the main form of wealth in our time.”
This is the kind of random line that gets sent out of those very uncharitable JPII random quote machines.
A)   Define “practical”.
B)   In common speech, people very often oppose “practical knowledge” to “ideas.” So what does the pope mean here, when speaking of matters outside of what Obama would call “his job description”?

My conclusion: the article is flawed. I am not at all against free markets or capitalism, but what is said here is just plain weird.
I don't know squat about economics, but I hope Belloc takes a shot at this.

[Anthem]

Not accepted by whom? The literature of economics accepts that free market capitalism is defined as lack of state interference in transactions. If you wish to argue against some other economic policy, by all means do so, but the terms need to be defined. "The system we know as capitalism" is not, as others have pointed out, the same thing as free market capitalism. And practice has abundantly proved that markets function better in a free, non-government regulated market. If we agree that the government should not be concerned, what are we arguing about?
To address the question of the creation of capital, I'm not entirely sure what your argument is. Yes, input from other geographic areas is required (I think this is what you're saying with the cheap energy part?),  but this is offset from importing goods to those areas in return. If I misunderstood the argument, please correct me. Bear in mid, too, that return on investment does not have to be strictly money with interest: if I produce, say, apples, but I need gold to go to the market and buy spices, the return on my investment is that I get what I need for something I have an excess of.

Lack of government interference certainly makes capitalism easier, but it does not define capitalism.  It is but one aspect.  Why call it "free market capitalism" if the free market is all that defines capitalism?  Just call it the free market.  If capitalism is something more than just a free market, and it is, then tell me what you think it is.  I already told you what most people say "capitalism" means.


Just a few of questions for you then:

1.  What is capital?

2.  Does capitalism require profit?

3.  If capitalism does not require profit, what differentiates it from bartering?

4.  Whence comes profit?