The Pope is wrong about capitalism

Uh oh.

The new pope, Francis from the Pampas, has just warned us to beware “the tyranny of capitalism”.

Each man worships his own gods. Some worship at the altar of Jesus of Nazareth. Some at the altar of the Almighty Dollar. The capitalists don’t bad-mouth Francis’s god. You’d think he would cut them the same slack.

Bad-mouthing Catholicism will win you few fans. Non-Catholics won’t care. And real Papists will be your enemies for life.

But bad-mouthing capitalism has a large ready audience of uncritical fans.

Of course, we rise to defend the faith – capitalism, that is. In this, we take the high road; not because we are high minded, but merely because we don’t like crowds. So, we will not stoop to criticising Francis’ faith, nor praising Mammon with hearty hallelujahs. Instead, we explore the discreet charm of honest money-grubbing, confident that at least in the land of free enterprise defenders we will always find a parking place.

Almost nobody really approves of capitalism, least of all the greedy SOBs on Wall Street who call themselves capitalists. They preach the gospel of risk-taking, but as soon as the risks go against them in a big way, they call upon their friends in high government places for aid and succour. They publicly support ‘free enterprise’, but privately they connive with regulators for bailouts, subsidies and barriers to entry to keep out competitors.

In the crisis of ’08-’09, for example, the financial industry had reached a major turning point. It should have turned. Instead, it kept going in the same direction.

What should have happened as told by David Stockman in his thorough book, The Great Deformation :

“… hundreds of billions of long-term debt and equity capital that underpinned the Wall street-based speculation machines would have been wiped out, including huge amounts of stock owned by executives and insiders. Such a result would have been truly constructive from a societal vantage point. It would have implanted an abiding 1930s-style generational lesson about the deadly dangers of leveraged speculations.”

Instead, the speculations paid off! And the now the big banks are bigger than ever. This week the Wall Street Journal reported that the top 4 US banks hold $214trn in derivatives. ‘Too Big to Fail’ banks are pushing the little guys out of existence. The WSJ:

“The decline in bank numbers, from a peak of more than 18,000, has come almost entirely in the form of exits by banks with less than $100 million in assets, with the bulk occurring between 1984 and 2011. More than 10,000 banks left the industry during that period as a result of mergers, consolidations or failures, FDIC data show. About 17% of the banks collapsed.”

The banks have $2.2trn more in deposits than they had when Lehman failed. Where did that money come from? Well, the Fed created about the same amount in its quantitative easing programme. Is that a coincidence, or what?


Bill Bonner on markets, economics & the madness of crowds

To sign-up to Bill's free daily email just enter your email address below

Because these emails are completely free, we do have to fund them with advertising. Occasionally we will send you promotional emails, however we will never give, sell or rent your email address to any other companies.For more information, please see our Privacy policy.


Yes, dear reader, the big banks hate capitalism too. What they like is crony capitalism. At least, they like it when they have the cronies in the Treasury Department and the Fed.

And the rest of the heaving masses hate capitalism too, but for other reasons. They are envious of those who have more than they have, and eager to redistribute other peoples’ money, to themselves, of course.

So, almost no matter in which direction the Pope heaves his message, to the modest nests of the have-nots or the sumptuous pads of the haves, he is bound to hit a supporter.

It’s true, as we have explained, that capitalism is easily corrupted by the capitalists, but that doesn’t mean it is a bum creed. People calling themselves Christians have done vile and repulsive things; that doesn’t mean that ‘love thy neighbour’ is not a worthy aspiration. Like Christianity, capitalism is a goal, not a fact.

“But that is the same argument the commies made after the wall came down,” countered number-two son, Jules, when we put this to him.

“They said that you can’t condemn communism just because the Soviet Union was a rat-hole. They said communism, too, was a goal – one that had been unrealised by the Russians.”

Our response was simple enough:

“Yes, but there are worthy creeds and unworthy ones. ‘Do unto others as you would have them do unto you’, is still the best way for a civilised community to get along. The more you depart from it, the worse off you are.

“Capitalism works the same way. The further you get away from truly free enterprise the more cronies and zombies (people who live at others’ expense) you get… and the less well the whole system works.

“Envy is a fact of life. You can’t eliminate it. But it has different results depending on what kind of a system you have. Trying to keep up with the Joneses in a capitalist society drives people to work harder, invent things, and helps everyone be better off.

“In a crony capitalist society, envy leads people to take advantage of the system. But it doesn’t stop everyone else from working hard and inventing things, not completely.

“On the other hand, the closer you get to true state-backed, command economy communism, the closer you get to North Korea! Some goals you want to work towards. Others, you want to work hard to stay away from.”

Someone should tell Pope Francis.

• Don't miss Bill's next Daily Reckoning. To receive the next article straight into your inbox as soon as he's written it, enter your email address below.

Because these emails are completely free, we do have to fund them with advertising. Occasionally we will send you promotional emails, however we will never give, sell or rent your email address to any other companies.For more information, please see our Privacy policy.


ScreenHunter_01 Mar. 25 09.51

New to MoneyWeek?

Bill-bonner

Welcome, and thank you for visiting us.

Here at MoneyWeek, our aim is simple. To give you intelligent and enjoyable commentary on the most important financial stories of the week, and show you how to profit from them.

If you've enjoyed what you've read so far, we've got something you'll definitely be interested in.

Every week day, Monday to Friday, we send out a thought provoking and often controversial email called the Daily Reckoning. In it, we try to figure out the markets and how current economical events are shaping the world we live in. If you're interested in investment opportunities and the markets, we think you should be reading it…

With your permission, I'd like to send you the Daily Reckoning for FREE.

To sign-up enter your email address below.

(No thanks)

We hope you enjoy your stay on the site.

Bill Bonner,
Editor, The Daily Reckoning

Because these emails are completely free, we do have to fund them with advertising. Occasionally we will send you promotional emails, however we will never give, sell or rent your email address to any other companies.For more information, please see our Privacy policy.

One Response

  1. 05/12/2013, jagpurr wrote

    Bill, I’m sure you have heard also of Dives and Lazarus. I think the point that Pope Francis was making is that far too often Capitalists (with a big C and even with a small c get carried away with their desire to make money and accumulate more “things”. This can often lead to uncaring work routines being introduced or deals done that chuck people on the scrapheap or the eroding of basic working conditions to the point where people can’t survive. People driven into poverty while the Dives of this world sup in luxury.
    Caring capitalism is rare to find in today’s world unfortunately

Comment on this article

MoneyWeek magazine

Latest issue:

Magazine cover
Walking out on the banks

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 3 FREE Issues
Shale gas 'fracking' promises to transform Britain's energy market. Find out what it is, what it means, and how to invest.

More from MoneyWeek

The problem with the Bank of England

Fracking: Nine reasons not to get carried away

Five small-cap stocks worth a flutter

This Dutch company could help us tame floods

ScreenHunter_01 Mar. 25 09.51

Get the latest tips and investment opportunities from MoneyWeek magazine: Claim 3 FREE Issues HERE