Some time last fall, the debate over bank stabilization metastasized into a frontal assault on the principles of capitalism itself. Demagogues whose policies were largely to blame for the crisis trotted themselves out as saviors who would deliver us from the depredations of Wall Street greed. Flushed with victory at the polls, they set to work putting whole sectors of the economy under government control.

During those crucial months, the public heard little counterargument. Capitalism’s defenders in academia, journalism, and think tanks went strangely mute, right at the moment their voices could have made a real difference. A short delay might have been excusable—all of us needed time to absorb and understand an extreme breakdown in financial markets that struck with breakneck speed. However, as the months rolled on and the threat of a socialist resurgence became more real, and still the self-appointed defenders of capitalism remained silent, it became clear enough that many of them were actually suffering a deeper crisis of confidence. By the time they finally started finding their voices, it was too late; the turn to Big Government was a fait accompli.

At the same time, some of capitalism’s traditional political allies began defecting. Social conservative opinion leaders, especially evangelicals, have been shifting leftward on economics for some time. It is now common to hear even the most naïve and undigested liberal clichés circulated among evangelicals as though they were profound discoveries. Savvy socialists like Jim Wallis, who have learned how to dress up their materialistic economic reductionism in religious language, have become big draws on evangelical campuses. Last year, evangelical voters lined up behind Mike Huckabee, whose populist proposals made economic conservatives apoplectic. And, of course, socially conservative Catholics remain deeply ambivalent about capitalism—as exemplified in the latest papal encyclical on the subject.

The diffidence of capitalist intellectuals and the disaffection of their social conservative allies are not two different problems. They are two sides of the same problem—a crisis in capitalism’s moral philosophy.

The Efficiency Case

There have always been two modes of argument in defending capitalism: an efficiency case and a moral case. The efficiency case argues that capitalism does the best job of accomplishing the economic outcomes that virtually everyone wants. The only available alternative, socialism in its endless variety of forms, produces inferior results on every metric. Whatever you care most about—the total amount of wealth produced, the alleviation of poverty, giving everyone an equal chance to succeed, distributing ownership widely, preserving the environment—capitalism gives you the best available outcome. From a practical standpoint, the obvious strength of the efficiency case is that it avoids divisive disagreements about ends or goals. We need not choose between maximizing national wealth and caring for the poor, or between rewarding the most talented and helping those who can’t help themselves, because capitalism does all of those things better than socialism, the only available alternative.

No doubt this explains why the efficiency case has enjoyed such a successful career. The small circle of intellectuals who made this case for capitalism so forcefully in the 20th century ended more suffering and created more freedom than almost any comparable group in history. And, not coincidentally, the argument has the additional merit of being true.

Nonetheless, from the standpoint of practical apologetics, when this argument stands alone it has some limitations. The efficiency case requires people to take a very broad, long-term perspective, whereas short-term results have a much stronger grip on human attention—and socialism promises immediate, concrete benefits. Moreover, the efficiency case is limited by people’s moral convictions; if people believe something is evil, the response “But it works!” doesn’t win arguments.

The Theology of Capitalism

The moral case for capitalism has a more complicated history. It is widely believed that capitalism developed as a result of the Reformation or the Enlightenment, or the two taken together. These transformative events certainly reshaped capitalism, but as an economic arrangement it predates them. Of course, it wouldn’t be profound to point out that “markets” and “commerce” have always existed. But even if we take a much stricter definition, the record still shows that capitalism dates back to the Middle Ages. In his landmark work The Victory of Reason (2005), Rodney Stark argues that the basic institutions that distinguish capitalism are a cash economy, credit markets, and the management of wealth by firms—rationally organized and meritocratically staffed organizations not dependent on kinship or household structures. Stark shows that all three of these existed in rudimentary form as early as the 9th century, were fully established in Italy no later than the 12th century, and before long had spread from there to the rest of Europe. A complex international system of banking and investment, managed by large financial and commercial firms, had been solidly entrenched for centuries by the time Martin Luther arrived, never mind John Locke.

Profit-seeking had always been controversial among Christians. Some of the early theologians, like Augustine, defended wealth accumulation if it was not motivated by greed. But among most of them, there was a tendency to treat profit as inherently greedy. While it was not considered necessarily wrong merely to possess wealth if you happened to have been blessed with it, going out and actively accumulating more wealth—profit—was frowned upon. The development of capitalism in subsequent centuries forced medieval theologians to revisit these moral judgments of the early church.

The central question for them, of course, was whether the early Church had rightly interpreted the Bible. In both the Old and New Testaments, the Bible robustly condemns greed and warns that wealth brings temptation, but it also expresses approval of wealth accumulated through diligence and self-control. Condemnation of the sins of the wealthy and prayers for greater material prosperity are both frequent themes in the Old Testament. Israelites were forbidden to charge interest on loans to each other, but were permitted to charge interest to foreigners. In the New Testament, the same Christ who said the salvation of a rich man would be impossible except for the omnipotence of God also gave us the parable of the talents, in which those who grow rich by making good use of what God gives them earn an eternal reward. In their epistles, the apostles instruct rich Christians to share their wealth with those in need, but they do not even remotely suggest that they must give it all away. In short, the early theologians had all the scriptural basis they needed to condemn profit. But they also had all the scriptural basis they needed to defend profit. To see why most of them condemned it, we must look beyond the biblical text.

What predisposed them to condemn profit were the assumptions they inherited from ancient Greco-Roman society. It was Aristotle, not the Bible, who argued that profit-seeking is inherently evil. Aristotle defended private property, the division of labor, and voluntary exchange because they were more efficient than collectivism. But he seemed to assume that wealth was static—that the total amount of wealth in the world cannot be substantially increased. So if you have more, your neighbor by definition has less; thus profit-seeking impoverishes others. Subsequent philosophers, and ancient popular sentiment, had agreed with these views.

Most early Christian theologians conceived of wealth in the same way as their Greco-Roman forebears, and therefore came to almost exactly the same conclusions about it. They supported private property, labor, and exchange—St. Benedict, for example, wrote that you’re not a true monk unless you live by the labor of your own hands. But they treated profit as indistinguishable from greed. While scripture did not require the Aristotelian view, it also did not directly challenge it, so the static concept of wealth and the consequent hostility to profit passed into Christian tradition with little opposition.

There was, however, one important difference. Unlike their Greco-Roman predecessors, the early theologians grounded their moral philosophy in the scriptural doctrine that the individual human being is sacred because he is made in the image of God. Most early Christian writers, such as Irenaeus, Tertullian, and Clement of Alexandria, defended private property not because it is more efficient than collectivism, but because to interfere with property rights—except where justice requires it—treats people as though they were animals or tools rather than as creatures made in God’s image. Christian belief in the sacredness of the individual is why slavery, which the ancients had condoned, was abolished in Europe under intense pressure from the Church after the decline of the Roman Empire.

Capitalism as an emerging fact of life forced the medieval theologians to consider whether their commitment to the sacredness of property, labor, and exchange could ultimately be squared with their opposition to profit. In the ancient world, with its low-tech economy and illiberal politics, there had seemed to be a pretty clear line between defending property and defending profit; it was one question whether it was wrong to let a person own his own things, and another whether it was wrong for a person to increase his share of the total things available. In the Middle Ages, however, less intrusive government and rapidly improving technology had changed the rules. Although full freedom was not extended to everybody—serfdom was dramatically better than slavery in a variety of ways, but it was still serfdom—the scope of individual liberty did expand considerably during this period; Stark links the original flowering of capitalism in 12th-century Italy to the emergence of more limited and democratic forms of government there. And as people were more often left to do what they wished with their own property, in the context of improving technologies of production and distribution, they had developed capitalism—and they were demonstrating that one man’s profit did not necessarily leave others worse off.

The Original Moral Case

Medieval theologians began to think that profit was more complicated than the early Church had assumed. The sacredness of property rights might imply that profit-making wasn’t inherently evil after all. Perhaps the most decisive moment for the theological defense of profits came in the 13th century. Albertus Magnus, one of the greatest philosophers of the age, defended capitalistic practices in his most important work, Sentences of Peter Lombard. He repudiated efforts to determine the “just price” of goods by an abstract formula, writing that the only possible “just price” is whatever price is set “according to the estimation of the market at the time of sale.” This meant people could buy low and sell high—making a profit—with a clear conscience.

Albertus’s student Thomas Aquinas adopted and expanded upon his teacher’s defense of markets in his Summa Theologica. In the Second Part of the Second Part, Question 77, Article 4, Aquinas summarizes and then rebuts Aristotle’s case against profit. He reasons that honestly acquired profit does no harm, and some of our moral duties (such as giving to the poor) presuppose the generation of wealth. “Profit, which is the purpose of trade, while it does not in itself involve something honorable or necessary, also does not of its nature imply something vicious or contrary to virtue,” he writes. “Nothing prevents profit from being directed to a necessary or even honorable goal, so that trade is thereby made licit.” The inclusion of this argument in the Summa Theologica, the 800-pound gorilla of medieval theology, represented a critical turning point for capitalism.

The intellectual battle over capitalism was drawn out over centuries. Various attempts were made to salvage as much as possible of the early Church’s positions while also accommodating capitalism. The resulting intellectual gymnastics sometimes made the debates extraordinarily complex, as theologians drew finer and finer distinctions and piled nuance upon nuance. In his 1597 Treatise on Money, Luis de Molina briefly reviews the various meanings with which the term “exchange” had been used in medieval theological disputes over monetary theory. First he distinguishes “exchange in the strict sense,” defined as including only exchanges performed by “innominate contract” in which “both of the things being exchanged are considered as price.” Then he reviews several schemes of classification used to analyze this concept—one school of thought recognizes three basic types of exchange in the strict sense, one recognizes four, and one recognizes seven. Cutting across these schemes, Molina notes another distinction between productive and unproductive exchanges, and yet another distinction (drawn in different ways by different schools) between “pure” and “impure” exchanges. Even if we follow Molina’s advice and stick to the school that only recognizes three basic types (“there is no need to multiply the types of exchange”) this implies twelve bewilderingly delineated categories of exchange—and remember, this only covers “exchange in the strict sense,” not all exchange. “We have said all this,” he concludes, “to better understand the doctors.”

The end result, however, can be summed up simply. Mainstream Christian theology, while never compromising its condemnation of greed, largely abandoned its hostility to profit-making as such. Greed for profits was wrong, but profit-making in itself was beneficial. Even the Old Testament prohibition on charging interest within Israel gradually came to be seen as inapplicable to current circumstances.

This represented a moral case for capitalism. Interfering with people’s property, labor, and exchange—except where necessary to uphold justice and sustain society—is a violation of the sacredness of the person. And increasing the total amount of available wealth is morally good, so it is wrong to stifle economic growth or to force potentially productive assets to lie wastefully dormant (such as by prohibiting the charging of interest).

This original moral case for capitalism did what the efficiency case alone could not have done: it answered the ancient moral objections to profit-seeking. It is difficult to imagine capitalism having flourished over the long term if this moral opposition had not been answered.

Moreover, the efficiency case for capitalism and the original moral case are not alternatives; they are complementary. When asked why we shouldn’t take money from the fortunate and give it to the less fortunate, we can reply both “because it doesn’t work” and “because stealing is wrong.” Many thinkers—from Aquinas to Locke to our own time—have successfully availed themselves of both approaches.

After the rise of religious freedom, public policy was no longer based on Christian belief. But while the original moral case for capitalism began with Christian theology, it did not end there; the rise of religious freedom went hand in hand with the development of a more ecumenical argument for the transcendent worth of the individual. The Declaration of Independence, for example, declares that every human being is endowed by the Creator with equal and unalienable rights. These were understood to include the rights to private property and to voluntary exchange for the sake of bettering one’s condition, subject only to minimal government regulation. So the moral case for capitalism weathered the transition from Christendom to the modern state with surprisingly little difficulty. Thomas Aquinas and Thomas Jefferson may have been at loggerheads on many other issues, but the moral case for capitalism could and did stand just as firmly on the natural theology and natural morality articulated by the Declaration as it had on the natural theology and natural morality articulated in the Summa Theologica.

The New Moral Case

As the public square came to be morally denuded in the 19th and 20th centuries, the moral argument for capitalism became less prominent. The case for capitalism was more often made on efficiency grounds alone. Equally important, those who did attempt to make a moral case for capitalism now did so on different, less philosophically robust grounds. Many of the most visible capitalist intellectuals—giants like Milton Friedman, Friedrich Hayek, and Ludwig von Mises—embraced a new moral case for capitalism that decisively rejected the old one based on the natural and divine significance of the individual. This new moral case was, either explicitly or implicitly, utilitarian and anti-metaphysical. It argued that government should forbid force and fraud not because the individual is transcendently sacred, but because this maximizes the satisfaction of people’s preferences.

Of this group, Hayek saw most clearly the moral insufficiency of utilitarianism and relativism, and (perhaps for that reason) was the most sympathetic to religion. If a robust moral philosophy of capitalism was going to emerge from 20th-century capitalist thought, Hayek was most likely to produce it. But he did not.

Hayek rejected all transcendent grounds of morality. At the beginning of his multi-volume opus Law, Legislation and Liberty (1973), he asserts that there is nothing in man other than what has evolved through blind and purposeless natural selection. Man survives “because his thinking and acting are governed by rules which have by a process of selection been evolved in the society in which he lives.” The human mind is no more than “the result of man having developed in society and having acquired those habits and practices that increased the chances of persistence of the group in which he lived.” All arguments to the contrary are lumped together and summarily dismissed under the blanket label of “Cartesian dualism.”

Thus for Hayek moral laws are no more than human traditions, which “evolve” through a process of self-criticism. “There can be no justification for representing the rules of just conduct as natural in the sense that they are part of an external and eternal order of things, or permanently implanted in an unalterable nature of man.” Nonetheless, he insists that morality is “objective” because each of us experiences the tradition of his society as something external, beyond his power to change.

But Hayek’s moral law is not “objective” in the sense in which traditional moral philosophy uses that term. For example, he writes that if he found an elderly Eskimo left behind in the wilderness to die in accordance with Eskimo traditions, he would not have a duty to help him. In fact, reviving the Eskimo from unconsciousness would be “clearly morally wrong”—unless, that is, “I regarded it as right…to transfer him into a wholly different society” that happened to have a preference for his survival. Despite Hayek’s protests to the contrary, his moral philosophy doesn’t really escape from the snare of utilitarianism and relativism. Whatever a society happens to prefer is his only moral law.

Though some have continued to make the original, transcendent moral case for capitalism, it is the new, utilitarian case that holds sway both among the most influential economic theorists and in the popular imagination. Many people now see capitalism as at best unconcerned with moral questions, and at worst hostile to objective moral principles.

The Road from Serfdom

The financial crisis revealed major weaknesses in the case for capitalism as it is made today. When the crisis arrived, capitalist intellectuals found they had little to say that would be persuasive to people caught in the grip of a national panic. Nor did they have much to say to social conservatives, who are an indispensable element of the political coalition upon which capitalism’s survival depends. These two weaknesses correspond to the two limitations, noted above, under which the efficiency case for capitalism labors when it is divorced from moral philosophy. Arguments that appeal to efficiency alone are ineffective during a panic because the natural human tendency to short-sightedness is then at its maximum force. People don’t want to hear about the general principles of efficient driving if they think the car is about to go off a cliff. And social conservatives are disaffected because the efficiency case doesn’t address their moral anxieties.

The original moral case for capitalism, grounded in the sacredness of the person, compensates for both these limitations. Consider, for example, this kind of rhetorical appeal: “It hurts when people are struggling to pay the bills, but that doesn’t give them the right to steal other people’s money.” That style of argument applies to short-term, concrete cases as well as to the overall, long-term good, and it answers moral concerns about capitalism. But when the crisis hit last year, too many of capitalism’s defenders had forgotten how to talk that way.

The new Hayekian moral case, by contrast, positively exacerbates the problem on both fronts. Utilitarian moral theory is even more dependent than efficiency analysis (its close cousin) on taking a broad and long-term view, which people are not inclined to do during a panic. And the new argument’s open hostility toward transcendent standards of right and wrong greatly increases social conservatives’ alienation from capitalism.

The short-term prospects are dim; we seem to be not so much on the road to serfdom as on the superhighway. But there is a road back from serfdom, the road that leads upward once again to the high ground upon which Western civilization long stood: fidelity to the liberty and dignity of the human individual.

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For Correspondence on this essay, click here.