Virtue, Liberty, and the Market: What the Left Will Never Understand About Capitalism

COMMENTARY Markets and Finance

Virtue, Liberty, and the Market: What the Left Will Never Understand About Capitalism

Jan 19th, 2022 8 min read
COMMENTARY BY
Richard Reinsch

Senior Fellow and Columnist, The Daily Signal

Richard is a senior fellow at The Heritage Foundation and a columnist for The Daily Signal.
"Business flows from the creative spirit of mankind, and the creative spirit of mankind comes from our status as image-bearers of God." kali9 / Getty Images

Key Takeaways

A free economy is bound to the basics of thrift, courage, risk-taking, virtue, alertness, restrained laws, and liberty.

What does turn many against capitalism is a perceived interwoven connection between business and state favor, which they then assume to be just capitalism.

Perhaps some basic facts have been missed in this critique of the so-called underperforming American economy when it comes to workers.

Does America still believe that it is an immensely gifted wealth-creating country? And does it further believe itself capable of producing not only the highest forms of technology, products, and services, but in a manner that lifts the sails of vast numbers of Americans?

There are grave reasons to doubt an affirmative answer to both questions when we look to new progressive policies and the arguments that have produced them.

The American economy, according to the left, is built on inequality and deepens that inequality at every turn, excluding great numbers of Americans from opportunity. We have heard this since we were in knee socks.

What has reemerged, undeterred by decades of bleak failure, is a fideistic belief in near limitless government spending, planning, and collectivism to heal and augment America’s economic scene.

The American Rescue Plan of March 2021 spent $1.9 trillion in funds the federal government did not have, most of it not going to COVID-19 relief efforts, the purported reason for the legislation. And it spread these funds across economic sectors.

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Other goals of the legislation were to further secure single-payer health care with premium support even for the employed, while instilling in many the experience of a universal basic income courtesy of monthly checks received by roughly 85% of households.

The currently blocked Build Back Better legislation would obviously deepen these efforts and introduce more regulatory mischief in the economy with its price tag in the trillions.

Indeed, so pervasive has the left’s critique become that it is wrapped in a justifying monetary framework known as Modern Monetary Theory, which posits the unique insight that government spending faces no hard constraints from tax receipts or borrowing costs because it is only money that we owe to ourselves. The federal government should accordingly set vast public spending goals that reframe the economy in a progressive direction.

But there is nothing “modern” or innovative about Modern Monetary Theory or any of the other policies set before us. For this and other pieces of market and fiscal wisdom, we can turn to a timely volume titled “There’s No Free Lunch” by David Bahnsen.

As the title indicates, so much of economics is about tradeoffs, imperfections, and limitations faced by all who enter the market as buyers, sellers, investors, and workers. Thus, the dismal nature of economics is found here as it confronts us with the hard truths of the scarcities we face.

Bahnsen’s book brings home these verities in 22 succinct chapters that feature meaty quotations from Friedrich Hayek, Art Laffer, Joseph Schumpeter, Sam Gregg, Ludwig von Mises, and many others on the things we must know about economics and the moral and cultural ecology that undergirds it. Bahnsen’s commentary further elucidates each insight.

What is evident is that a free economy is bound to the basics of thrift, courage, risk-taking, virtue, alertness, restrained laws, and liberty. The book also puts to the reader something even more controversial than just market economics. Bahnsen underscores that we also need an anthropology of man under God, rooted in freedom and virtue, to make sense of the high adventure of wealth creation and its responsible stewardship.

He quotes Lenin, who observed that running a business can be done by “anybody who can read and write and knows the first four rules of arithmetic.”

Lenin’s desire was total wage equality. Bahnsen notes his materialism and the reduction of the human person from our most essential quality: “Lenin (and all socialist/Marxist/collectivists) failed to understand that man is created in the image of God.”

And, according to Bahnsen, this means that

business flows from the creative spirit of mankind, and the creative spirit of mankind comes from our status as image-bearers of God. If you get this wrong, you will get everything else wrong. Lenin is a case in point.

The economists need to get right with the truths about God and man, Bahnsen says. The failure to do so plagues our thinking about what defines us as a trading people. And, I would add, as a constitutional people who must accept hard limits on what the government can do for us.

This argument is sorely needed right now as we hear voices reducing us to egalitarian monads who should bemoan inequality, inequity, and unfairness. The assumption being that an economy is materialistic, its evaluation and correction should take place along lines of income redistribution, government-created jobs, and a providential welfare state.

However, as Bahnsen observes in a chapter on crony capitalism, what does turn many against capitalism is a perceived interwoven connection between business and state favor, which they then assume to be just capitalism. The ultimate legacy of cronyism is that it morally destroys markets in the eyes of citizens.

Bahnsen is the founder and managing director of the Bahnsen Group, an investment firm in California and New York. He also engages in economic education endeavors, including hosting the podcast “Capital Record.”

His goal in the podcast, evident in this book, is to underscore that the market economy depends on knowledge, creativity, incentives, constraints, and risk. There’s nothing mysterious, let alone predatory or unjust, about such an economy. A source of such fallacious views of predation, inequality, and injustice and of the incomprehension of actual market forces are the intellectuals for whom the economy is beyond control of their (ir)rational minds. They lack the key to economic wisdom—indeed of any wisdom—and that is the capacity to admit how much they do not know and how much is beyond their purview.

Bahnsen argues in the book’s introduction that free-market economics engages fruitfully “the ‘knowledge problem’ (how information is best seen and understood in a society) that is the basis for my view of a market economy, of a limited role of the state in such, and for basic doctrines of social organization.”

Hayek beautifully articulated this thought in a 1945 article in the “American Economic Review” titled “The Use of Knowledge in Society.” The modern economy goes beyond anyone’s knowledge, Hayek articulated, and is instead invigorated and expanded by the particularized knowledge of limitless actors.

The universal of this economy is the price system and the discovery that prices reveal to everyone in the economy about what they should do given the ends they happen to be pursuing. The coordinating element of the near infinite transactions in the economy will never be the central government, not if growth and efficiency are our ends. Rather, prices must be kept free from regulatory direction precisely because of this important function they serve.

Bahnsen deepens this Hayekian insight by noting that power and knowledge come together in capitalism because they are first kept distinct. He quotes George Gilder: “Because knowledge is dispersed, power must be as well.”

Here rests another argument for limiting government control. If commercial titans and small businesses everywhere labor under knowledge constraints, facing success one year only to see it reversed the next because of a host of known unknowns they now face, then the problems only multiply for a government bureaucrat whose incentives do not include the profit motive. Power employed without particularized knowledge leads to folly.

In the introduction, Bahnsen notes that an increasing number of voices on the right now echo in various ways those on the left in their criticisms of the American economy. They join parts of the progressive critique, articulating that the American economy of the last 20 years has failed the working class, men, industrial workers, and rural and small-town Americans. Free trade left them for the dead.

The call is for new federal interventionist policies that will supposedly direct capital, employment, and income in a distributive framework superior to the one that has prevailed in the past few decades.

They say this economy has been led by a supposedly deregulated, low-tax, winner-take-all system in America. Their claim is that industrial policy, reviving private sector labor unions, wage subsidies, and even confiscating endowment property and distributing it can improve conditions for the working-class Americans above that of market outcomes.

Perhaps some basic facts have been missed in this critique of the so-called underperforming American economy when it comes to workers.

Nicholas Eberstadt noted in his 2020 Irving Kristol lecture, “Between 1985 and 2017, the share of Americans in homes depending on poverty benefits more than doubled, and America’s means-tested citizenry nearly tripled.”

For men, more than 1 in 4 take welfare benefits, a figure made worse if disability programs are included. And yet, as Eberstadt wonders, why is rising welfare dependency never considered when we discuss “the endangered middle class”? Perhaps the better course is to recover the conditions of growth and reemphasize the bourgeois virtues discussed in Bahnsen’s book.

Programs like industrial policy and attempts to steer capital to economically underperforming parts of the country will fail for the central reasons of knowledge deficit that undermine government decisions to make “investments” in private companies.

Who will make these decisions? What information will they have? What timing and strategic questions will they face? What companies will they pick? What types of jobs, technology, and sectors will they invest in?

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To believe that bureaucrats in the Commerce Department or the Small Business Administration, for example, have a grip on answering these questions is to put political objectives over the limited but real opportunities available in a voluntary market.

And the 20th century is littered with failed industrial policies in Asian and Latin American nations. Industrial jobs have diminished in number in virtually every developed country in recent decades, even in countries like Germany and France for whom their maintenance has been an explicit goal.

Japan’s once vaunted Ministry of International Trade and Industry was believed by many, including in America, to have proven the efficacy of such policy if done rightly. In 2002, the Japan Ministry of Finance reviewed its policies and concluded, “the Japanese model was not the source of Japanese competitiveness but the cause of our failure.” Ah, the road to ruin is paved…

The reasons why government industrial policies have failed are contained in this book, which builds on much more than just the knowledge problem.

Bahnsen concludes with a passage from Yuval Levin on the moral and cultural ecology a market economy must have for its successful operation:

We would be mistaken to assume that capitalism could produce sufficient moral authority to provide that balance on its own. Such authority would have to come from more traditional moral and cultural institutions beyond the market. And our case for capitalism must therefore also be a case for those institutions.

Indeed.

Bahnsen began his book with the case for man as created in the image of God. He concludes by noting that man is rooted in love, in relationships with others, and with tradition as his guide. When these are dismissed or marginalized, we should not be surprised that the market diminishes under an ever-growing state, possessed of tremendous power.

This piece originally appeared in The Daily Signal