July 23, 2014

Defining Capitalism and Some Thoughts for the Church

An interesting post on First Things by Michael Novak, “ Caritas and Economics.” Novak discusses the different understandings embodied in the six different Latin words for love.

In anticipation of some of my own work looking at private property in light of the tradition of the Orthodox Church, my attention was drawn to Novak’s definition of capitalism. I think he is correct in his assertion that, “ Especially in Europe, capitalism is a term supposed to be spoken with faint—or not so faint—moral disapproval.’ He continues that, at least among those who are self-appointed and anointed right thinker, “It is what all are supposed to be opposed to, not only by Marxists, who spent more than a century vilifying (and misdefining) the term, but also by humanists, poets, playwrights, churchmen, journalists, and all sensitive spirits.” The key to his criticism of the critics is, I think, the charge that most of those who reject it do not understand capitalism. While he doesn’t say this, in my own experience I have found that many opponents (and not a few proponents) of capitalism base their views on a straw man. So, let me turn the stage over to Novak and his answer to his own question “What do I mean by capitalism?”

It is not a term accurately defined by (a) private property, (b) market exchange, and (c) private accumulation or profits. That is the way Marx defined it, and that definition applies to virtually every economic system in history, even in biblical times. It is not sufficient to distinguish capitalism from the pre-capitalist systems that prevailed everywhere until the end of the eighteenth century and still prevail in most of what is called “the third world.” Max Weber, R.H. Tawney, and many others noted that something new entered the economic world some time after the Protestant Reformation. ( Post hoc, of course, is not propter hoc.)

So what is it that is unique to capitalism as an economic system? Capitalism “is the first mind-centered system.” In other words

It is the system constituted by social institutions that support human creativity, invention, discovery, enterprise. In this new economy, the most important form of capital is not land, as it was in feudal times (that is, most of human history); nor the cold instruments of production referred to as “capital goods”; nor even financial assets. The most important form of capital is human capital. The best resource a country has is its own people. The human person is the chief cause of the wealth of nations, deploying human skill, knowledge, know-how, inventiveness, and enterprise.

At the heart of capitalism though is a moral anthology that, while incomplete, is often overlooked by critics and defenders of capitalism and the so-called free market.

The moral principles that inspire capitalism, therefore, are three: creativity, community, and personal initiative. Capitalism is first of all a fruit of the human spirit. It depends upon, and nourishes, a special (and demanding) moral ethos. The formerly socialist countries are discovering how high and how difficult its moral standards are. (It depends, for example, on the rule of law and on respect for the free voluntary consent of persons. In nations where law does not rule and persons are treated as means or obstacles, capitalism withers.)

Contrary to what we sometimes think, and again whether we are opponents or proponents,

The most distinctive invention of capitalism is not the lonely individual, as is often charged, but social: the stock association, the business corporation (independent of the state, transgenerational, potentially international), the social market itself, practices of teamwork, brainstorming, and consensus building, and voluntary cooperation. The capitalist vision was the first to imagine the possibility (and moral imperative) of lifting every single person on earth out of poverty, to set the goal of universal economic development, and to bring about the embourgeoisement of the poor.

The whole article is certainly worth reading, especially Novak’s evidence based defense of capitalism and his treatment of the anthropology of love. What I would draw your attention to are the three core values, or better virtues, of capitalism: creativity, community, and personal initiative. Again while acknowledging their insufficiency for the whole of human personal and communal life, I cannot help but wonder if in fact we would not do better not only as a civil society but also as the Church of Jesus Christ if we did not foster more intentionally these three core virtues both in our clergy and laity. While we generally do a good job with the middle term, I think we have a generalized fear of the first and third—a fear I would suggest that while not wholly unreasonable (think heresy and schism) has become a source of much self-defeating behavior, policy and procedure in how we structure the life of the Church in America.

As always, your questions, comments and criticisms are not only welcome but actively sought.

In Christ,

+Fr Gregory

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Comments

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    Dn. Brian Patrick Mitchell says:

    Sorry, Father, but Novak’s dreamy definition of capitalism is itself (in his words) “not sufficient to distinguish capitalism from the pre-capitalist systems that prevailed everywhere until the end of the eighteenth century and still prevail in most of what is called ‘the third world.’”

    What really sets our modern Western “capitalist” system apart in history is its elaborate body of stable civil law providing secure title to property, which allows assets to be counted as capital and thereby used as collateral. In essence, capitalism is an economic system based on debt, which has its pluses and its minuses, as Marx understood and as Novak doesn’t.

    For a clearer idea of where Novak’s coming from, read Eight Ways to Run the Country (Praeger, 2006), by yours truly.

    In Christ,

    Dn. Patrick

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    Chrys says:

    Fr. Deacon Brian Patrick, I strongly agree with your main point about the critical value of “stable civil law providing secure title to property.” This is a key differentiator between developed, successful economies and pretty much all other options. It is the barriers to ownership – which seem to be primarily established to enrich and protect the ruling elite while eliminating the threat of competition – that often keep underdeveloped countries so impoverished. (It is against just such fundamentally unjust and self-serving systems which both Scripture and the Fathers often railed.) By contrast, free markets which vigorously protect property rights are far more beneficial to the poor than most ideologues on the left ever recognize. First, because strong protections of ownership rights is far more important to the poor who do not have the means to influence policy (or, in many places, bribe officials) needed to protect their assets. Second, it permits vigorous competition — which can be a greater threat to entrenched interests (which have historically tried to “tilt the playing field” to preclude such threats) than to emerging ones, for whom it is almost always an opportunity. While there are other, critical benefits, these are often overlooked by those claiming to work for social justice. (Interestingly, they almost never actually pay for it; they have others do that.)

    One qualification, though. While assets – used as collateral – permit the use of debt, it has only been relatively recently that this has become so pervasive. (It is very much a generational “thing.”) I work with many closely-held businesses that grew without – and eschew – debt.

    Rather, I believe that perhaps the important value of ownership is implied in the point above: it makes enterprise possible – more particularly, it makes the assumption of risk possible. So long as what I have is clearly mine, I can use it to “invest” in a long-term venture. By contrast, I will never do so (and can not even contemplate doing so) if I am never sure that assets/capital belongs to me, if it can be taken from me at someone else’s whim. The typical response to such circumstances is to protect assets, to hoard them. in fact, there is no real potential for meaningful long-term gains since – if they are striking enough – will simply be taken from me. (Think “government as piracy” and you’ll have it.) It is those countries that have lowered the barrier/threshold to ownership – whether debt is widely used or (more often) not – that have developed vigorous economies. Nothing on this earth is perfect, but – historically speaking – the free market has done more for the poor than the best intentions. While we often recognize that it is more valuable to “teach a man to fish” than to “give him a fish,” we rarely observe it in practice. We fail to recognize – until we have been there or seen it – how dehumanizing it is to have NO control over one’s future. Give the poor money today and we help them survive. If we will give even more – including the opportunity to acquire “assets,” then you give him the hope that he can make a better tomorrow for himself. The self-respect, opportunity, hope, ability to create something of value for his family and the chance to dream are priceless. I wonder how many of those who decry free markets recognize this.

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    George Michalopulos says:

    Fr Greg, excellent insihts. I know that the concept of debt is held to be disagreeable, and it is, the nature of fallen humanity is “what is the alternative?” Without the accumulation of some personal debt (like a mortgage) it would be next to impossible for a young couple to form a family. Of course, the way out of this conundrum is to live in a more Christ-centered community (think Amish). In such situations, the entire commune pitches in and makes things happen, like a barn-raising.

    Having said that, creativity and respect for the rule of law are necessary not only for the free market to thrive, but for societies themselves to be stable and non-violent.

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    Daniel says:

    I was looking at another thread here at AOI, and followed a link to The National Herald. At that site was its “Poll of the Week” on whether or not Greece should have an airline that is its “national carrier.” Here is the question:

    “Olympic Airlines has been struggling for years. Its future is still unsettled. Many people believe it’s important for a country to have an airline that is its “national carrier” The question is, if Olympic Airlines were to go out of business, would that be bad for Greece?”

    64% said Yes, 32% No, 6% Maybe.

    It seems that a majority of those answering the poll don’t have a clue what a market economy is, whether from Novak’s or Dn. Patrick’s perspective.

    On a personal note, I have begun to chaff, recently, at using the term capitalism, since it was coined by Karl Marx. I’ve always been partial to market economy myself. For one, it drops the silly term “free” which the market economy has never been and never will be. Secondly, I never like those who oppose a thing setting the terms of the debate. I’m kind of stubborn that way. Sorry.

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    Chrys says:

    George, the anabaptist tradition (i.e., Amish, Mennonite, the Bruderhof, etc.), in general, has done a pretty good job (can one say that?) of trying to integrate the Sermon on the Mount into daily life and can be understood as sort of a public form of (non-sacramental) monasticism. I’m just not sure how this would translate within an Orthodox milieu; particularly their “high” level of community which makes it possible and which is supported by various means of separation.

    I agree, too, that debt has real value when used for capital purchases (versus consumption). If not for easily available mortgages, as you note, few of us could buy homes prior to 40 (though the atrophied market would significantly reduce the price of homes. Fewer buyers, after all.)

    Daniel, I agree with your comment about capitalism – having made a similar point elsewhere on this blog. (It was actually “invented” – as was modern economics – by a Frenchman, but Marx certainly popularized it and beat it into its current connotation.) I would generally agree with your comment about the use of “free markets” as well – though I used it – since there are very few that could qualify. (Ours is now so heavily entwined with government intervention that it couldn’t come close to qualifying.) My only quibble – a minor one – is that “market economy” isn’t very descriptive. Or, more to the point, the more an economy is not “market-driven” the less vital it is. As one attorney friend put is, the only true non-profit is in bankruptcy court. The same is true of economies at large: one either has some degree of a market-based economy or else one has something that is gradually imploding. A market economy fosters creative destruction (Schumpeter); anything just fosters destruction.

    Along those lines, if creativity is a reflection of the divine image – which I believe it is – then a market economy, for all its messiness, reflects something fundamentally true in the order of creation.

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    George Michalopulos says:

    Daniel, your point about price “atrophy” is correct. Fewer buyers = lesser cost. However though the price of a house was smaller ($100K vs $185K), the raw numbers are still insurmountable. It’s like what my dad told me a long time ago about something being expensive vs something being “affordable.” Timed-buying, i.e. mortgages, car payments, installments, etc. makes things more expenses but because time is factored in as a method of payment, more reachable.

    The problem however is that we have used “good debt” (mortgages) to finance luxuries and desires rather than necessities (cars, homes, etc.) The present crash as I understand it was because the housing bubble burst. Plus too many people were buying homes not through their own efforts but because the productive sector was subsidizing them. Or being forced to by disastrous economic policies put in place by Carter and reinforced by Clinton.

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    John Couretas says:

    Deacon Patrick:

    Is this the citation? From First Things “Caritas and Economics.”

    My friend Irving Kristol writes of Two Cheers for Capitalism. That may be excessive. One cheer is quite enough. The other economic systems known to history have done far worse. Especially for the poor.

    What do I mean by capitalism? It is not a term accurately defined by (a) private property, (b) market exchange, and (c) private accumulation or profits. That is the way Marx defined it, and that definition applies to virtually every economic system in history, even in biblical times. It is not sufficient to distinguish capitalism from the pre-capitalist systems that prevailed everywhere until the end of the eighteenth century and still prevail in most of what is called “the third world.” Max Weber, R.H. Tawney, and many others noted that something new entered the economic world some time after the Protestant Reformation. (Post hoc, of course, is not propter hoc.)

    What is new about capitalism is that it is the first mind-centered system. It is the system constituted by social institutions that support human creativity, invention, discovery, enterprise. In this new economy, the most important form of capital is not land, as it was in feudal times (that is, most of human history); nor the cold instruments of production referred to as “capital goods”; nor even financial assets. The most important form of capital is human capital. The best resource a country has is its own people. The human person is the chief cause of the wealth of nations, deploying human skill, knowledge, know-how, inventiveness, and enterprise.

    Seems that Novak’s definition could certainly accommodate the fact of financial debt — and much more. Could you elaborate a bit?

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    Chrys says:

    The present crash is very much a painful “deleveraging” of excessive debt. America actually had a negative savings rate at one point; it jumped fairly quickly to 4% by the end of Q4 2008. (Compare that to China which has had a savings rate of around 35%.)

    You are right about “time buying” – manageable cash flow allows us to assume a larger overall debt which, in turn, tends to increase the price of the asset being underwritten. (There is a strong case as well for the inflationary effect of dual incomes on housing prices, too, not to mention the fact that the median home is significantly larger than it was 40 years ago.)

    In the case of young home buyers, it actually makes sense to generally try to buy as much house as you can reasonably manage (reasonably being the critical qualifier). Over time, as your income increases, the portion of the budget dedicated to debt will gradually shrink.

    If there is any interest, I believe I can offer a fairly quick (for me) overview of the recent crisis. (I work in money management and this has naturally been a constant focus of attention for the past eleven months. On the other hand, the distress we have been through has also improved my prayer life.) However, since it would be off-topic, I don’t want to divert the focus of this blog if it is not of particular interest to others here.

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    Chrys says:

    What is new about capitalism is that it is the first mind-centered system. It is the system constituted by social institutions that support human creativity, invention, discovery, enterprise. In this new economy, the most important form of capital is not land, as it was in feudal times (that is, most of human history); nor the cold instruments of production referred to as “capital goods”; nor even financial assets. The most important form of capital is human capital. The best resource a country has is its own people. The human person is the chief cause of the wealth of nations, deploying human skill, knowledge, know-how, inventiveness, and enterprise.

    Exactly right.

    As only one example: consider the Energy industry. It was not long after the Civil War that John D. Rockefeller figured out a way to make cheap, reliable kerosene. This replaced expensive whale oil, drove heating costs way down and allowed the poor to heat their homes. (It also “saved the whales.”) It was creativity and “intellectual capital” – supported by strong property rights and the venture that made possible – that allowed an important innovation that made an enormous contribution to society. (It added such value to so many, that he was made unimaginably rich; this wealth was earned, not bequeathed or stolen or “distributed” to him.)

    As Peter W. Huber and Mark P. Mills argue in The Bottomless Well, it is the ongoing application of entrepreneurial effort, exercising intellectual capital with ingenuity and creativity, that has continually reduced the costs of creating energy and increasing energy efficiency. The compound effect of this is that we are able to do far more and, in the process, increase (not decrease)the resources available to us.

    Thus new drilling technology (from diagonal drilling to new ceramic proppants) has allowed us to “crack the code” of natural gas (now just $3.5/mcf). While many claimed that we would exhaust our resources within our generation, new technology has allowed us to identify more reserves than ever imagined from more formations. We are awash in resources – provided that we don’t impose draconian laws to push us into a “green” energy crisis. This incredible expansion in the wealth of natural resources available to us is the result of the unleashed intellectual capital of free citizens. In allowing each to respond freely to his particular motivations, goals, talents and opportunities, free markets reliably create incredible value that ultimately bless our neighbors, enrich the poor, allow the diligent to realize the fruits of their labors and increase our quality of life. While John Rockefeller or Henry Ford (or, for that matter, Bill Gates, etc.) could have no idea of us who were generations yet unborn, their efforts have blessed us and allowed us to enjoy life in a way that was unimaginable to all but royalty just a few centuries ago. In many ways, their efforts – liberated by the freedom and opportunity of a market economy – have become gifts to all mankind.

    Thus back to Father Gregory’s initial question: how can the Church likewise “exploit” the gifts God has so richly given to ALL of His people for the blessing and enrichment of all?

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    George Michalopulos says:

    Chrys, you’re right: dual incomes have also inflated the cost of housing. That to me is a moral crisis in that I believe that the home is the province of the wife. (I fervently believe that if more women took up their vocation, then unemployment among men would drop to near zero.)

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    Fr. Johannes Jacobse says:

    George, true, but how much has increasing taxation also contributed to the need for dual incomes? With taxes eating into 35% or more of income (and it is way more if you count the hidden taxes), more income becomes more necessary.

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    Chrys says:

    While hidden taxes would require considerable study, the top marginal tax rates have been above 50% from 1932 until 1987. During the 1950s and early 1960s, the top rate exceeded 90

    While folks may claim that the top marginal rate did not impair growth during that period, they forget that the primary cause of the economic boom in the US (and the real reason we recovered from the Great Depression) was that we were pretty much the only intact economy following WWII. The rest of the developed world was reduced to rubble; growth was inevitable – regardless of tax rates – when there was no competition from abroad and nothing but potential consumers for our products.

    In fact, the Marshal Plan was not only a humanitarian and political success; it was a commercial boon. That is, the Plan financed Europe’s ability to buy US products so they could rebuild their lives. This historically unique situation is a vital reason for our economic success during that period. Yes – WWII did end unemployment – as any national draft would. Though it significantly increased economic output, you can not really grow an economy for long by creating stuff to be destroyed. It was the post-WWII situation, not WWII itself, that got us “out of” the Depression.

    As a result, during the period of the 1950s, we could “afford” confiscatory tax rates, just as GM (which then stood for “Generous Motors”) could afford to offer increasingly generous benefits. When competition began to become meaningful by the late 1960s, however, excessive tax rates and excessive benefits started to become debilitating. As a child who lived in Pittsburgh in the early 70s, I witnessed the devastating collapse of our industrial and manufacturing base. The decade of the 70s appeared to be an economic death march.

    Fortunately, the reduction of high tax rates and the simplification of the tax code enabled the widespread formation of small businesses (which had been punished by high tax rates and the unseen costs of complying with complex regulations), unleashing the talents and creativity of our citizens. This generated productivity and wealth unimaginable to our forefathers — not to mention a more diversified and resilient economy.

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    Chrys says:

    As for dual incomes, our economy has certainly benefited from the contributions that women have made and women have often been freed from economic dependence and personal constraints. Children, arguably, have suffered from the pervasive loss of an at-home parent. The unfortunate decline in general civility indicates that neither employees (child-care workers, etc.) nor the t.v. have done an even adequate job of raising children in the parents’ stead. (Of course, instead of yelling at their parents, today’s teenagers can tweet them “I h8 U” in what amounts to the full extent of their diminished literary skill.
    Unfortunately, it is a truism that what was once a luxury has now become a necessity. (Think of the cell phone or air conditioning or ATMs or . . .) The economy has adjusted to and reconfigured itself so that two incomes are now required — that is, unless we want to forgo competitive consumption. But lets’ face it, it’s way more fun to buy cool new “stuff” than it is to spend time with needy, developmentally immature, self-centered people. Despite that, my wife is still willing to spend time with me.

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    Cynthia Curran says:

    Well, the 250,000 range is upper-middle class not wealthy if you live in coastial California or states like New York where housing tends to be a lot higher than the national average it isn’t wealthy. Probably, most people in the 250,000 could afford to pay higher taxes but that doesn’t make them wealthy in the way that liberals think they are. Also, the super wealthy in the United States usually lower their taxes by putting the money in trusts that why George Soros supports liberal causes because he doesn’t fear being tax that much.

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    Dn. Brian Patrick Mitchell says:

    John,

    The problem is that Novak is using the term “capitalism” in an evangelistic sense, as we would use the term “Gospel.” As such, his “capitalism” covers an assortment of his personally preferred factors that contribute to capitalism’s success, but the factors he names as most important — creativity, invention, discovery, enterprise — are not, in fact, peculiar to capitalism and do not in themselves explain why Wall Street produces more wealth and power than the Arab souk. Even the rule of law does not explain why, for the rule of law has existed in many civilizations without producing the extraordinary material prosperity that capitalism has.

    What does truly distinguish our modern capitalistic economy from all others is debt. Our whole economic system is undergirded by a vast web of promises of future payment, and those promises allow us to do a lot of things we could not do otherwise. Capitalism is thus not a “mind-centered” system; it is a time-centered system, unlike the merely market economies of the Western past and the Arab present.

    Novak doesn’t see this because he’s stumping for capitalism and only wants us to see it as a good thing, so he overlooks the moral hazards of all those promises — the freedom we surrender in exchange for loans, the temptation to have it all now, the singular focus on material goods at the expense of all others, the resulting “dollarization” of human intimacies like childcare, and the accumulation of extraordinary wealth and power in the hands of some very bad men who don’t care what they are buying and selling.

    I’m not writing a general indictment of capitalism, just pointing out that capitalism has a downside and in fact has proven profoundly destructive of traditional values, as Marx predicted. Capitalism is not the Gospel. Capitalism needs limits. Without limits, capitalism will enslave us. In a thoroughly capitalist world, men will buy and sell each other.

    But please, read my book. You’ll learn a lot more.

    In Christ,

    Dn. Patrick

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    John Couretas says:

    Dcn. Patrick (#15):

    Thank you. I couldn’t agree more with this: Capitalism is not the Gospel.

    Indeed, no economic or political system can stand in place of the Gospel for Christians. That should be beyond dispute.

    But not all economic or political systems are of equal value. Talk to Orthodox Christians who lived under Marxist tyranny in Russia, Romania and other former communist lands. I’m sure you understand this as someone who has written a book on the subject of political systems (unfortunately, because of the very tall stack of unread books in my office and home, I won’t be getting to yours anytime soon.)

    I, for one, favor a maximum level of freedom — in accord with our nature as made in the “image and likeness” — in both the political and economic spheres. But these maximum degrees of freedom always come with limits. Without limits, we are anarchists. And who would wish that on anyone?

    To paraphrase Churchill, I think that the market economy is the worst of all economies, except for all of the others that have been tried.

    I disagree completely with your estimation of Novak as someone who is blind to the failures of capitalism, or blind to its potential pitfalls. That was not true of his excellent 1982 book, “The Spirit of Democratic Capitalism,” and it’s not true of his much more recent writings. I see balance here:

    If that was the failure in the political system, the economic system also accrued an immense array of failings. First some too brilliant Wall Streeters got the clever idea of buying Fannie Mae mortgages and packaging them to sell in large bundles. Financial institutions around the world eagerly bought them up—for what could be safer than mortgages backed by the American government, as those of Fannie Mae uniquely were?

    The trouble is that, once Fannie Mae mortgages were bundled, no one could tell which ones had high probabilities of default. Once home prices started to fall, sometimes from overheated speculation by those who thought home prices would continue going up, purchasers had to sell off their mortgages at a loss (or go into default) in order to cover their losses.

    Meanwhile, other clever Wall Streeters had invented a new type of investment of Olympian sophistication: derivatives. These new packages further blocked transparency into what exactly investors were buying. By this point, nearly all who had invested in these packages of mortgages could not tell which of them held the highest number of rotting oranges in their sack. At bottom, the financial crisis was precipitated by a mortgage crisis, which the geniuses on Wall Street made far worse than it might otherwise have been. Both the political system and the economic system failed the nation.

    So did the moral and cultural system. While home prices were rising rapidly over the past fifteen years, ballooning the net worth of millions of homeowners, none of those who benefited complained. For my part, I judge now that I should have known earlier that something was wrong and that this was all too good to be true. It seemed petty to complain as the good times rolled in: Maybe things just work out that way, I rationalized. Instead, morally, we should all have been suspicious. I, for one, wasn’t.

    I’m also puzzled by your singular focus on debt as the distinguishing characteristic of capitalism (the semantics here are a bit complicated — free market, free enterprise, market economy, captalism — I tend to avoid the term capitalism because it was used for so long as a pejorative by Marxists. But informally it will do fine). Surely, you’re not saying that debt was invented — pick a time — with the rise of the Industrial Age, say late 18th early 19th century. Witness the long debate over usury — in the West and the East — in medieval times. In fact, debt has been with us as long as we’ve had commerce. And some of the commercial systems, dating certainly as far back as Byzantine times, were quite sophisticated. Maybe they didn’t have mortgage backed securities (thankfully) but they were no more “primitive” in their commercial dealings than they were in their theological or political life.

    For another good balanced view of where we are, by someone who has been a strong supporter of the market economy, read this article by Jennifer Roback Morse on Zenit. Here’s my favorite part:

    First, neither the economic nor the political spheres can function entirely on their own. Both the economic and the political sectors need to be peopled with individuals who have well-formed consciences. Therefore, economics and politics rely upon the Church, the family, and other social structures that shape the conscience.

    Second, the cultural sphere needs its own defense. Both the economic and the political sectors have plenty of ideological defenders. The libertarian right seems to believe that the market can manage all of society. The socialist left seems to think that the government can solve every problem and wipe away every tear.

    Extremists on both sides fail to respect culture’s distinctive role.

    The modern ideologies that reify either the state or the market have difficulty understanding that the encroachments of their preferred sphere into the social and cultural sphere have the potential to dehumanize us.

    She’s also doing great work at the Ruth Institute. Check it out.

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    Cynthia Curran says:

    John is right here. Roman law forbid compound interest but once sent the upper limit for maritime ar 23 percent. However, Justinian sent interest between 4 to 12 percent. Romans had used contract agreements in order to lend or receive compound interest in order to get around the law. However, Justinian forbid that. I think later Byzantines according to an article I had read had the maritime interest loans up to 16 percent. Maritime was higher since there was more risk involved like attacks from pirates and dangers at sea. John is right all three branches of christianity had difficulty with excepting interest.

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    Dn. Brian Patrick Mitchell says:

    John,

    You are reading entirely too much into my brief cautionary notes on Michael Novak’s praise of capitalism. No point in arguing the matter.

    Peace in Christ,

    Dn. Patrick

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    Dn. Brian Patrick Mitchell says:

    On second thought, John, a few points:

    First, I confess my impatience. After all I have already written to distinguish the historical phenomenon widely recognized as “capitalism” from other more or less free economies, you still only use “capitalism” as another name for free enterprise, leaving me to wonder whether I’m wasting my time.

    Second, I confess my pique at what appears to be a deliberate insult — something along the lines of “Gee, I’d love to read your book, but I’ve got so many other books at home more worthwhile.”

    Third, I confess my mistake in trying to communicate with someone who doesn’t know me and so doesn’t know how to take what I say. I do know you to some extent; I’ve been reading your blogs for some time, and nothing you have written in this exchange surprises me. But this is the first time you’ve heard from me, and you’re probably wondering if I’m not some kind of leftist. I am not, but I am also not Novak’s kind of conservative.

    Now to the issues:

    First, capitalism: What is it? We can’t discuss its strengths and weaknesses if we can’t agree on what it is. I say it’s a modern economic system founded on money-lending, in one form or another. I don’t see any point in using the word to mean simply free enterprise or market economics. If you still want to talk that way, then nothing I say will make any sense to you. In that case, I suggest you read Hernando de Soto’s The Mystery of Capital and maybe Niall Ferguson’s The Ascent of Money.

    Second, Novak: What’s his take on capitalism? My initial post commented on a specific article by Novak in which he presented a view of capitalism that is inaccurate and overblown. This article is typical Novak. Whatever qualifications he feels obliged to admit at times, he remains an evangelist for a system he believes will save the world, and in his evangelism he very often overstates the system’s virtues and overlooks its vices.

    Obviously you don’t share my estimation of Novak, which is why you really should read Eight Ways to Run the Country. It’s not about political systems; it’s about political perspectives. It explains where people are coming from and why. In doing so, it contrasts Novak’s kind of conservatism and other kinds more appropriate for Orthodox Christians. The theory behind the book is based on the distinction of archê and kratos (for rank and force). It’s a very Byzantine distinction, with Orthodox theological relevance. But if you have other books at home that you feel more worthwhile, please tell me what they are, so that I can read them too.

    For the record, the Romans sometimes charged interest as high as 48 percent per annum.

    Best in Christ,

    Dn. Patrick

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    John Couretas says:

    Dn. Patrick:

    My response was designed to show that you were unfair in your characterization of Novak’s views. Is he an “evangelist” for the market economy? Sure he is. Is he blind to its snares or destructive tendencies. Not at all, in my view.

    Again, to say that capitalism is founded on “money lending” seems terribly reductionist. And is money lending good or is it bad? I would say it’s essential for business expansion and economic growth, something we’re all trying to figure out how to jump start these days.

    De Soto (I’ve recommended the book to many people over the years) says that “implementing a property system that creates capital is a political challenge because it involves getting in touch with people, grasping the social contract, and overhauling the legal system.” This makes sense to me. All of this works together in a complex social, political and economic fabric. It seems to me like there’s a lot more going on in the “Mystery of Capital” than simple money lending.

    I’m actually reading, among other things, Judith Herrin’s excellent “Byzantium: The Surprising Life of a Medieval Empire.”

  21. Back to Recent Comments list  Back to top
    Dn. Brian Patrick Mitchell says:

    Now it really is time to quit. I’ve kicked your sacred cow, and so there’s no reasoning with you.

  22. Back to Recent Comments list  Back to top
    Chrys says:

    Father Deacon, I will read your certainly book. The reviews were impressive, (the vita is certainly daunting), IBD remains a perennial favorite, and I do like what I have read by Niall Ferguson so far (his critique of Krugman, his assessment of recent US debt and Asian savings, etc).

    That said, I too, have questions which I hope your book will resolve. Like John, I wonder how debt is a distinctive element of market economies?

    As noted before, I strongly agree with your focus on property rights. (On a related point, I recall a book a few years back – forget the title – that persuasively criticize the failure of South American economies to emerge from their economic chaos because of very high barriers to property ownership and the tentative nature of the claim once acquired.)

    It is the emphasis on property rights that points to what I view as THE essential element of a market economy: equity. In short, you can’t leverage what you don’t own. Debt presumes equity (and cash flow). Debt is one possible use once you have an asset, but equity ultimately precedes any notion of debt in both function and primacy. This, to me, is THE distinctive of the modern market economy (certainly as compared to mercantilism or the feudal economies of once and future underdeveloped nations). My limited experience with investment bankers seems to reflect that hierarchy of value: debt will be more readily offered and is “cheaper” for the asset-holder than giving up equity, which is usually deemed as more valuable. In a different but related way, the “equity premium” seen in stock markets around the world recognizes the importance, potential value – and increased risk – of ownership over and above debt instruments. Not sure if this is somehow incorporated into what you mean by debt – and I am sure that you provide important nuances in the book – but it expresses my confusion about the point. (Or am I just seeing the trees and missing the forest?)

  23. Back to Recent Comments list  Back to top
    Fr Gregory says:

    I was out of town last week and so have not been able to respond to the comments posted here. Please forgive my absence and accept a few, admittedly poorly organized, thoughts on the conversation here. Forgive me as well for repeating what others have said here and said with more authority than I have in these matters.

    Having read through the various comments generated by Dn Patrick’s comment I find myself more than a little confused. Yes, certainly, Novak’s understanding of capitalism is not exempt from criticism and I don’t imagine Novak would say otherwise. But it seems to me that the conversation that has ensued rather misses the point of Novak’s defense of capitalism.

    Novak’s piece was posted on the First Things’ blog in anticipation of Pope Benedict’s encyclical “Caritas in Veritate.” Just as Pope Benedict does with economics in general, Novak seeks to offer us what he sees as the anthropological foundations of capitalism; what is the human truth that underlies at least his understanding of capitalism?. Whether he is successful or not in bring to light the human foundation of capitalism this is certainly a question that can be debated but I do not see in the criticism here any attempt to engage Novak’s specific concern to articulate the human truth about capitalism or if one prefers, the free market.

    This is not to say that I necessarily disagree with the criticisms that have been offered–I don’t. But I do think that Dn Patrick’s concerns about law and debt (to name only two) can be subsumed under Novak’s more general argument about the importance of community for the both the practical success of capitalism and is moral compass (a compass that seems rather lost these days).

    Besides being empirically and anthropologically sound, Novak’s argument anticipates Pope Benedict’s own in “Caritas in Veritate” and offers a potential point of communality between the Tradition of the Orthodox (and for that matter, Catholic) Church and at least some forms of capitalism.

    Finally it seems to me that even if we agree with him, in not taking up Novak’s anthropological concern we do him an injustice. We in effect end up responding not to what he says but what we wish he had said and (in so doing) also miss the opportunity to explore areas of common concern with him and each other.

    In Christ,

    +FrG

  24. Back to Recent Comments list  Back to top
    Chrys says:

    Father, thanks for “re-railing” (versus de-railing) the conversation. Your comment focuses the issue on underlying dynamic that ultimately seems to inform the success or failure of any effort, vision or ideology: what is being assumed or revealed about humanity?

    Though I may be taking another tangent, three quick (and not terribly penetrating) thoughts come to mind.

    First, in describing why the market economy works so well, Novak is trying to described something that – while a social construct – emerged “organically” (primarily within the context of English common law). It was not a “concept” that was designed or imposed – as were more than a few efforts in the 20th century which ultimately disintegrated from defectiveness. We are better at describing what seems to work that designing it. (Score one point for humility.)

    Second and related to the first, as Hayek showed, one cannot know enough effectively command an economy. To put it more positively, the gifts and contributions that each of us can make are infinitely richer than the outcomes imagined by “the best and brightest” none of whom could have imagined even a fraction of the innovations that we take for granted today. Thus, when we respect the unrepeatable gift of each, we all benefit. (Score two points for humility and one for gratitude.)

    Third, what may be reflected in Novak’s comments (at least as quoted) and your comments, (and – I suspect – Dn. Brian Patrick’s taxonomy), is that the market’s effectiveness is – at least in part – reflective of our being made in the image of “communion.” That is, we thrive as individuals – and our gifts generate value – when offered within a community (reinforced necessarily by law) that engenders trust and accountability, respects/defends the boundaries of the individual, and offers incentives that reward and foster creativity. In overly simple terms: without any one of these features, the effort fails; together, they can generate unimagined wealth that can bring blessings to everyone.

  25. Back to Recent Comments list  Back to top
    Fr. Johannes Jacobse says:

    Note 19. Dn. Patrick, I have a copy of your book, have read a few chapters previously, and took it out again tonight in light of your comments above. Good piece of work overall (caveat: have not read the entire book yet). This stuff is right up my alley.

    Nevertheless, I think you are running from the points John presented.

    I noticed too a presumption running through your book, that capitalism is morally offensive in that it does not check wanton behavior in the arena of commerce (pornography, etc.). Is that correct? Also, it appears you think that a benevolent monarchy is the the only government suitable for a Christian people/nation. Is that correct as well?

    Also, I noticed what I would call a moral leveling at work. Your brief description on Noam Chomsky’s political/social philosophy for example, while very well expressed never really deals with the concrete ramifications of Chomsky’s ideas if they ever were implemented. You make I think a very fair and clear distinction between, say, Chomsky and Alexander Cockburn who both share some fundamental ideas in common, but never mention that Chomsky was an apologist for Pol Pot while Cockburn, as far as I understand him, would never be deceived by the Marxist delusion to the degree that Chomsky was. (You can see that I think Chomsky’s ideas are a recipe for tyranny.)

    I wonder if the leveling occurs because you really don’t see any type of rule apart from monarchy as viable. All of the West seems poisoned by the waters of capitalism.

    Am I on track here or am I misreading it?

  26. Back to Recent Comments list  Back to top
    Fr Gregory Jensen says:

    Thank you Chrys (#24)for your summary of the virtues that support the efficiency of the market economy.

    Fr Hans, I have on more than one occasion encountered Orthodox Christians who seem to argue that monarchy is the only form of government even potentially compatible with Orthodoxy. I have not read Dn Patrick’s book so I cannot comment on his political philosophy, but the concerns you raise (#25) is one’s I have heard before–not only the preference for monarchy but also the moral leveling in matters pertaining to economics and politics. If I am not mistaken, the charge of moral leveling was also made by Fr Alexander Webster in his examination of how SCOBA has responded to issues of war & peace.

    As has been pointed out before (both here and elsewhere) the central questions of our age pertain to issues of anthropology–what does it mean (and not mean) to be human? The technical questions of economics (and for that matter politics but civil and ecclesiastical) are important to be sure but their importance is secondary.

    The phenomenological psychologist A. Giorgi has characterized the importance of anthropology in his use of the term “approach.” Is our approach or stance towards technical matters informed by a sound vision of the human person and community or not? What I appreciate about Novak is his frankly evangelical approach to capitalism, an evangelistic spirit informed by a sound vision of the human (as evidenced in the post that served as the occasion for our conversations here).

    In Christ,

    +FrG

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    Cynthia Curran says:

    Well, I for one do not want to go back to the Byzantine Empire. We have more rights and the average American has it a lot better than the average Byzantine did. Constantine and Justinian are interest figures of history but I for one would not want to have lived under their reigns. Justinian was not only dislike by Procopius but also Evagrius and the other historians of 6th century.

  28. Back to Recent Comments list  Back to top
    Cynthia Curran says:

    The United States is of course is not perfect. But Jews have received better treatment in the US than they did in Russia. The play Fiddler on the Roof mentions the pograms in Russia. I think that the United States isn’t the only country with its own sins. Also, when I was on you tube I notice that Greeks and Macedonians tend to say worst things about each other than the average American. Sure, different ethnic or racial groups in the US don’t like each other but as stated before I notice this also involves people in European countries. Also, Greeks and Turks say also very unkind things about each on the internet.

  29. Back to Recent Comments list  Back to top
    Fr Gregory says:

    Cynthia,

    I agree that Jews have received better treatment here than in Russia. And while we have not had pograms against the Jews we have had the equivalent against the members of the Native American Nations and there is the matter of slavery.

    All that said while we have our sins as a nation, we also repented and work to right (granted with varying degrees of sincerity and success) the wrongs we have committed.

    Your example of the relationship between Greeks and Macedonians or Greeks and Turks is a good one. Yes there have been (and are) racial and ethnic tensions in America, even as there are in Europe and other parts of the world. But thank God while we have not always resolved these tensions as well as we ought (or even could), America has in the main worked to maintain some semblance of justice and peace between and among the different communities that make up the nation.

    Like you, I would not wish to live in Byzantium (#27) and I suspect very few of those who post here would. Nor, for that matter, do I have any desire to live in Russia, Greece, the Middle East or any traditionally Orthodox country. I am, and am happy to be, an American.

    While I thank God for my Orthodox faith, I also thank Him for my Catholic boyhood (and more for my Catholic education!), and for being an American. As I have mentioned here (among other places) before, I think the arrival of the Orthodox Church in the US in providential–not only for America but also for the Church. In America the Church can see the best and worst to modern (i.e., post-16th Century)thought played out. Not only that, we have in America the freedom to shift through and take what is best and leave what isn’t and put it all at the service of the proclamation of Christ and the Gospel. To quote Metropolitan Jonah, in America we need not beholden to the needs and desires of secular government–we have here unparalleled freedom and opportunity that, to borrow a phrase, for which I am frankly (and unapologetically) an evangelist–but I am so only insofar as it serves primary evangelistic obligation: the Gospel of Jesus Christ.

    Thanks for the comments above. You’ve given me much to think about.

    In Christ,

    +FrG

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    Dn. Brian Patrick Mitchell says:

    Thank you all for your thoughtful comments and courteous criticisms. I shall try to be as thoughtful and courteous in my reply.

    To Chrys (22): First, not all “market economies” make use of debt. The Arab souk does not, and consequently it does not generate the wealth that Wall Street does. Second, the freehold landowner of the Middle Ages had “equity” and “cash flow,” but the economic value of his land was limited by his inability to lend the income from his land to others at interest or borrow money for capital improvements (irrigation, farm machinery, all of the things that make today’s farms so productive). Third, banking is almost all about money-lending, and it has only been in the last 500 years that banking has come to dominate economics, such that a crisis of liquidity (no cash to lend) can threaten our economy with collapse. It is therefore useful and important to distinguish between mere market economies, based on trade, and capitalist market economies, which also make use of money-lending (in a word, debt).

    I can’t argue with the three virtues of market economies you name in 24. Our present system did arise “organically,” is obviously more efficient than any command economy, and is based on peaceful and profitable interdependence among people. I will even add a fourth virtue specifically related to the capitalist aspect of our modern economy: It encourages optimism, based as it is on an expectation of future communal success.

    To Fr. Johannes (25): Thank you for the kind words about my book, but let me say a few things about it so that others are not misled: First, the book is strictly descriptive in approach, not prescriptive. Nowhere in it do I say what ought to be, only what is and what can be. Second, the book was written in an evenhanded fashion for the academic market. (It passed peer review by the University of Oklahoma Press.) This deliberate evenhandedness might account for much of what you see as “moral leveling.” My intent was not to indict Chomsky as a potential tyrant, but to distinguish him from others on the Left. It is true that some “Radicals” like Chomsky actually do become tyrants when put in power, and I say so in the book. It is also true that many people are not entirely consistent or even honest about their politics, and I say that in the book, too.

    Of course, anyone with a good ear will get an idea where I’m coming from in the book. I am most comfortable in the “upper right” of my compass. This is the corner of traditional conservatism, called Paleoconservatism in the book. Paleoconservatives are indeed less in love with capitalism than Neoconservatives and Paleolibertarians, but they are not socialists. They merely recognize that money and freedom, however important, are not themselves the summum bonum, that people need government, that God gave us government, and that economics is no exception. It needs limits.

    I am surprised that you assume me to be a monarchist. Nowhere in the book do I express such a preference. I suppose an ideological republican — an anti-monarchist — might take me for a monarchist because I criticize democracy without condemning monarchy. But then, I’m not writing about monarchy; I’m writing about today’s politics, which are entirely democratic. Can’t someone point out the faults of democracy and capitalism without people jumping to the conclusion that he’s a monarchist and a socialist? Can we only think in terms of A and not-A? I wrote the book to show that reality is not that simple, that politics can’t be reduced to just left and right, but my experience before and after writing it has been that people in general cannot abide complexity and reflexively reduce everything to two alternatives. They are more comfortable that way.

    Here’s what I really think: All reality is ultimately personal, therefore all government is ultimately personal as well. We are never ruled by systems; we are ruled by people, and almost invariably there’s one person at the top who does the most ruling. In that sense, monarchy is inescapable. What matters most is who the monarch is and who the people supporting him from below are, for no monarch ever ruled alone. If they are bad people, no system known to man will give us good government; if they are good people, any system will. In either case, it will still be a fallen, imperfect, and sinful world, until the King — yes, the king — comes again.

    Is this moral leveling? If it is, it’s the leveling of a world-weary believer who has read and seen enough history to understand that we mortals are and always have been ignorant and confused sinners who just don’t get it, even when we take the right side in the fight. Man careens through history not knowing where he is going. God knows. We don’t. Lord have mercy!

    Your fellow fool,

    Dn. Patrick

Trackbacks

  1. [...] My post on the implication for the Orthodox Church of Novak’s understanding of capitalism (for the original post, click here)  has inspired an interesting, if not always edifying, conversation over at the American Orthodox Institute Blog where I cross posted the piece (for the post and comments, click here). [...]

  2. [...] this discussion of Capitalism is interesting and particularly the comments of Brian Patrick Mitchell, [...]

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