The Spritual Basis for Capitalism

It is commonplace to speak of seeing God’s signature in the intricacy of a spider’s web or the animation of a beehive. But they pale in comparison to the kaleidoscopic energy and productivity of the free market. If it is a blessing from Heaven when seeds are transformed into grain, how much more of a blessing is it when our private, voluntary exchanges are transformed — without our ever intending it — into prosperity, innovation, and growth?

- Jeff Jacoby, Boston Globe, November 2003

Capitalism isn’t supposed to work. I play my tune on the computer keyboard. Someone plays their tune on the oil rig. Someone else plays their tune on the dentist’s drill. Someone else plays their tune on the cash register. You have all these people doing different things, each of their own volition, nobody’s coordinating it, there is no czar somewhere telling people what to do, people just go to work, earn money, buy what they want, and somehow, the economy magically grows about 3% a year. We all get about 3% richer a year. More in good times, less in bad times, but on average, about 3%. That’s for a developed economy like the United States—developing economies can grow much faster. Hell, the United States could grow a lot faster if it stopped regulating everything that moved.

This is what happened to wealth and prosperity when modern industrial capitalism came on the scene:

There is voluminous evidence that capitalism works better than any alternative. Rather than blinding you with science with a bunch of charts, I’m going to talk about the spiritual nature of capitalism. Remember, it isn’t supposed to work. The thing that was so attractive about communism was that it was scientific. It was born of man’s mind. Someone of high intelligence could sit atop an economy and direct people into jobs and allocate capital to industries and know the exact amount of any commodity that should be supplied and demanded at any time. As it turns out, nobody is that smart, nobody can anticipate people’s needs, and countries that chose this path experienced paralysis, shortages, dislocation, and failure. We don’t know how capitalism works—nobody does—we only know that it does. There are a lot of things in life that we don’t need to know how it works, only that it works. My guess is that not many of you are mechanically inclined—you couldn’t fix a car engine if you had a wrench stapled to your forehead. It is a jumble of tubes and pistons and wires. I don’t need to know how my car works, only that it works, and when I push the gas pedal, it goes. Oh sure, I know the theory behind an internal combustion engine—I read about it when I was in the Coast Guard. Could I fix one? No. I hire someone else to do that, which is the division of labor in action. I write my newsletters and someone else fixes my car and we are both rich, fat, and happy.

So we might say that we have faith that a car engine works. Now, some of you can probably fix a car engine, so maybe this is a bad example. You know what else works? Twelve Step programs to end addiction. Nobody knows how they work, either, and yet they have helped millions of people around the world, with alcohol addictions, drug addictions, sex addictions, and gambling addictions. You want to know the interesting thing about these Twelve Step programs, like Alcoholics Anonymous? They don’t have CEOs. They don’t have leaders at all. If they had executive leadership, they would fail in a matter of months, if you had some jerk riding herd on people telling them to do stuff. They are completely decentralized, and each group is completely autonomous, and even though there isn’t someone imposing standards on a top-down basis, the meetings are pretty much the same no matter where you go. And it works, and nobody knows how the hell it works, but all you need to know is that it works.

I have a trading system. Well, it’s part system, and part experience, and part judgment. I’ve been investing and trading for 26 years, and I’ve cranked out very good returns, and I don’t know how the hell my system works, I only know that it works, and I know the process is repeatable, so even when I experience short-term losses, I have faith that my system works and it will produce returns over time. Believe it or not, you can’t invest without faith, because the future is unknowable. No amount of effort or work is going to get the market to do what you want it to do. The typical retail investor doesn’t know anything about the stock market, doesn’t know anything about the tubes and pistons and wires, but he knows that stocks usually go up over time, so with a little faith and patience, you will get the desired results. This is actually not a terrible way to invest. I have a better way to invest, but this is not a terrible way to invest.

That word—faith. There is no room for faith in economics, is there? One thing I used to wonder is why the political right, which typically has free market sensibilities and is also religious—aren’t those two things incompatible? I mean, wasn’t Ayn Rand strictly atheistic? She hated religious dogma. It’s because people on the right are comfortable with the concept of faith, and they don’t need to know how something works, only that it works. It’s not so much that the hillbilly in West Virginia knows or doesn’t know the principles, ethics, and philosophy of free markets—he doesn’t need a degree in economics—he just needs to know that the system that he lives in produces results that are superior than any alternative. You see, the big hangup that people have about capitalism is that the motive force behind it is greed, and any system that is based on greed is somehow unethical, or at least distasteful. Well, greed exists in the public sector, too—you see the outfits that AOC wears—and why is political self-interest somehow nobler than economic self-interest? Of course we are self-interested, and any attempt to subvert that instinct leads to diminished economic results. This is where Ayn Rand got her knickers twisted—the morality of Christianity (or all religions, for that matter), is altruism, the idea that we should spend more time thinking about other people than we think about ourselves. Altruism has its place, in small doses (as I’ve explained before), but altruism doesn’t work as an economic system because we can’t possibly know or predict the desires of other people, as you will all find out when you get your Christmas gifts this year. A brown Le Tigre sweater, size medium—thanks Mom! That thing is on the express bus to Goodwill.

I just ordered (literally 5 minutes ago) socks, underwear, melatonin, and protein bars from Amazon. I spent $150. It will arrive at my door tomorrow. If that isn’t a miracle from up high, then what is? We tend to take capitalism for granted—you go to the gas station and pump your gas, and you don’t spend any time thinking about the complex chain of events that led to you putting gas in your gas tank, from drilling for the oil in the Gulf of Mexico, to shipping it onshore, to refining it, to trucking it, until it ends up underground at your gas station—and you are PISSED if the price goes up a penny. Holy cow. We have no idea how good we have it. When I stand back and look at capitalism—each person acting in their own self-interest, for the benefit of all, it is nothing short of a miracle. And the miracles are picking up speed. AI has been around for about three years now, and it is improving at rates that were never thought possible. People are investing hundreds of billions of dollars in it, and it hasn’t produced a dime in revenue. Incredible. You see, only under capitalism would someone invent a thing, and stand back and say, “this is a pretty cool thing, we might be able to make money off this thing,” and go and invest hundreds of billions of dollars in that thing, with no discernible plan out to make money off of it. In a communist system, nobody would have invented the thing in the first place (there are no incentives to do so), and even if someone did, some AI czar would have had to come up with a plan as to how it was going to pay for itself and not create billioniares in the process. The unplanned is better than the planned. For sure, in the short term, a lot of investors are going to lose their asses in AI, but in the long-term, it will create vast amounts of wealth—and not just for the billionaires. Amazon created vast amounts of wealth—in the old days you’d get into the family truckster and spend half your day rattling down to Target to pick up picture frames and gym shorts, where now, you can simply push a button and get it delivered to your door, freeing up time to work, play, or anything else. I remember a few years back, Jeff Bezos wrote a piece about the moral justification for Amazon, and how much time it saved people, and as you know, time is money, and how everyone got rich in the process—not to mention Amazon stock, which has gone up a lot.

This is the point in time at which we should discuss naïve interventions. You see, capitalism is kind of an ecosystem, and prices are signals. If prices are high, they tell producers to produce more, and consumers to consume less, to avoid a shortage. If prices are low, they tell consumers to consume more, and producers to produce less, so as to avoid a surplus. If you start monkeying with prices, then the system doesn’t work. I think our friend Mamdani will find that when he freezes the rent in New York City that it will have the complete opposite effect of what was intended—rents will actually go up, not down. This can all be explained with a supply/demand diagram, and if you hold prices below the equilibrium where supply and demand clears, then you will have a shortage, a black market will develop, and prices will actually go up. There are price floors as well, like the minimum wage, which create a surplus of labor willing to work at that price, otherwise known as unemployment. The philosophy behind this is as follows: if you naively intervene in a system that you don’t understand, then you will cause unintended consequences. Mamdani thinks he knows what the right rents are. Well, there are controlled experiments in economics, and when Javier Milei removed all rent controls in Buenos Aires, thousands of new apartments were listed, and rents actually came down—a lot. But human beings think they know better than the free market, God’s signature in the intricacy of a spider’s web or the animation of a beehive, and they intervene in that system, and when they do so, they are actually saying that they are smarter than God. Prices do overshoot—sometimes they go very high, and sometimes they go very low. We find these situations to be unacceptable, so we intervene, and it gets worse. I don’t hear people talking much about laissez-faire these days. The interventionist instinct is alive and well on the right as well as the left. It takes a great deal of patience, and faith, to sit back and wait while prices are temporarily overshooting. You might recall that the price of cocoa went up a lot 2-3 years ago. Seen a chart lately? It is coming back down. Remember when lumber exploded higher during the pandemic? Lumber prices are now lower than they have been in years. If we had capped the price of cocoa or lumber, we would have been very unhappy with the results. Laissez-faire, or leaving something the hell alone, is a very spiritual thing to do. Saying “I don’t know what’s best for me or anybody else” is a very spiritual thing to do. Saying “I think it’s going to work out in the long run” is a very spiritual thing to do. Capitalism is not just an economic system, it’s a manifestation of mental and spiritual health. The socialist says, “I can fix it—one more law and utopia will be reached,” which releases untold economic horrors. This is true in all situations where prices are high and “out of control,” whether it’s health care or higher education or anything else. Stop intervening, and you will get the result that you desire.

But here is the problem: elected officials aren’t elected to do nothing. They are elected to do something. Housing prices are high? Do something about it. Prescription drugs are expensive? Do something about it. If you don’t do something about it, you will get voted out of office. There are very few politicians—none, in fact—who can make the moral and spiritual case for doing nothing when you have a so-called market failure. By the way, the market never fails. Prices overshoot from time to time, but the market doesn’t fail. Everything is how it is supposed to be at this moment in time. There are no mistakes in God’s world. You only have years or decades of dysfunction when you constantly intervene in a system which you know nothing about.

About a year ago, Mel Robbins released her book The Let Them Theory, which is basically about leaving well enough alone. I saw a clip of Mel Robbins recently on Bill Maher’s show, and from what I gather, she is a liberal. I always find it interesting when people are in possession of the correct answer, but somehow fail to apply it to economics, which is somehow unique, or different. The price of cocoa is too high? Let it be high. Wages are too low? Let them be low. Everything is self-correcting on a long enough time horizon—if you don’t screw with it. I look at attitudes towards capitalism and laissez-faire as a measure of psychological health in the aggregate, and we have become progressively less psychologically healthy. Everything is an emergency that requires intervention. The trade deficit is an emergency that requires intervention—see how that one is working out. It’s ego, is what it is, thinking that we know best. We don’t. We don’t know anything about anything. When you understand that, in your core, then you are mentally and spiritually healthy. All you need to know about God is that there is one, and it isn’t you.