Much, I suspect, to the modern left’s surprise, capitalism has become a subject for intense debate among conservatives. One recent contribution to that discussion is Matthew McManus’s Public Discourse article, “Social Transformation and the Market Economy.”

McManus maintains that there are serious flaws in my criticisms of R.R. Reno’s much-read reassessment of the late Michael Novak’s defense of capitalism and classical liberal institutions. Many of McManus’s observations echo the more generic critiques of free markets that have gained traction in recent years among conservative intellectuals, especially younger ones.

Among other things, this trend suggests that some older, more established free market defenders have either (1) been asleep at the wheel, content to rest on the laurels of the Reagan and Thatcher Revolutions; (2) assumed that the conservative case for free markets doesn’t need significant recalibrating for the twenty-first century; or (3) imagined that the best response to cultural, political, and theological criticisms of free markets is an economic argument. Novak, for one, didn’t make these mistakes.

Capitalism isn’t and shouldn’t be beyond criticism. For conservatives in particular, there’s no such thing as a perfect economic system. That said, I find McManus’s critique of my arguments unconvincing. Here’s why.

Start your day with Public Discourse

Sign up and get our daily essays sent straight to your inbox.

There’s More Than One Capitalism

McManus’s first criticism is that I fail to recognize that today’s over-regulated, government-intensive economy is “what capitalism looks like in practice.” This claim, I’d argue, is historically and logically questionable.

McManus underrates the extent to which most contemporary Western market economies are products of a post-1918 and post-1945 world. Governments today understand themselves to be in the business of “managing the economy.” Our political masters actively compete for the coveted mantle of “most competent manager of the economy” at election time.

One way in which these management aspirations express themselves is in large government expenditures. These account for anywhere between 30 and 55 percent of GDP in OECD countries today. Other manifestations of today’s managed capitalism are the large welfare states and extensive labor market regulation that characterize, for example, most Western European economies. The usual justifications for these policies are that they help smooth boom-bust cycles and promote equality and social justice.

Whatever these policies’ effectiveness, today’s mixed-economy or managerial capitalism is certainly not the same as the indisputably capitalist economies that marked much of Western Europe and North America throughout the nineteenth century. John Maynard Keynes’s famous description of the pre-1914 North American and Western European economic world in his Economic Consequences of the Peace (1919) underscores just how remarkably free (and materially prosperous) that world was for the overwhelming majority of its inhabitants.

Tax rates in these nations were far lower than today. Until the advent of the Bismarckian welfare state, most social assistance in these economies was undertaken by private (usually religious) associations. Once the power of guilds to suppress competition, innovation, and freedom of movement was broken, labor markets in nineteenth-century capitalist economies were very free, especially compared to labor markets in today’s France, or the sad Britain of the 1970s.

More generally, Western governments didn’t see themselves as “economy managers.” That’s partly because the type of macroeconomics pioneered by Keynes and developed by his followers from the late 1940s onward didn’t exist. Governments consequently lacked the conceptual apparatus to engage in the type of demand-side management that, Keynes later maintained, enabled governments to, for instance, keep unemployment down.

But many governments also shied away from trying to directly manage emerging capitalist economies because many Western elites had absorbed Adam Smith’s critique of the mercantile system that dominated Europe from the early 1500s until the late 1700s. They accepted Smith’s argument that liberalizing markets would enable faster and greater wealth creation and growing prosperity for all, while simultaneously undermining economic privileges for political and business insiders. Examples of governments actively choosing these policies include Sir Robert Peel’s Tory administrations as well as reformers of the Prussian state, who specifically invoked Smith as they aggressively dismantled mercantilist policies from 1807 onwards. Even France was embracing free trade policies by the 1850s.

But to return to the present: McManus not only ignores the very different forms assumed by capitalism in the past; he also underestimates major differences between many contemporary capitalist economies. In East Asia, for instance, Hong Kong’s very free market capitalism is very culturally and structurally different from Japan’s highly regulated markets. Both contrast significantly with Singapore’s peculiar blend of corporatism and markets.

Then there are the well-known differences between “Anglo-American” capitalism and that which pervades continental Western Europe. Even within Western Europe, France’s étatist brand of capitalism is quite dissimilar to the German economy, the latter having been uniquely influenced by ordo-liberal economists such as Walter Eucken and Wilhelm Röpke.

In short, it’s an error to argue that the capitalism of much of the contemporary West—a blend of cronyism, neo-mercantilism, and markets—is effectively capitalism. There are many manifestations of capitalism, and their specific forms are more influenced by different ideas and cultural dispositions than we sometimes realize. That includes the late medieval capitalism highlighted in Robert Lopez’s ground-breaking The Commercial Revolution of the Middle Ages (1971) and Richard Goldthwaite’s superb The Economy of Renaissance Florence (2009)—a form of capitalism about which many contemporary conservative critics of free markets who otherwise extol the Middle Ages are remarkably silent. Put another way, capitalism hasn’t always been, and doesn’t have to be, what it is now in America.

Mr. Smith and the Intellectuals

McManus’s second criticism is that I downplay Adam Smith’s other side: the Smith who insisted that societies needed to embody particular virtues to offset our baser commercial instincts; who had a low view of businessmen because they preferred to game the system at the expense of consumers; who worried about the effects of the ever-expanding division of labor; who stressed that there was a role for good government.

This Adam Smith obviously existed. It’s a point I’ve often made elsewhere when critiquing those free-market thinkers who view government as a necessary evil (or just plain evil), or who rather unthinkingly buy into consequentialist or pseudo-evolutionary accounts of morality. Indeed, there’s no shortage of promoters of free markets who have made observations similar to Smith’s concerning capitalism’s downsides.

But I would point out that these concerns didn’t stop Smith from concluding that the trade-offs associated with moving toward freer economic arguments marked by extensive capital-accumulation and investment were worth it. Moreover, the book in which Smith expressed his reasons why he believed this to be the case, the Wealth of Nations, was primarily and consciously directed to men of ideas and legislators. Why? Because Smith saw these individuals as the most likely to change the world.

Which brings me to the core of McManus’s second criticism. Having stressed the importance of understanding Smith’s cautions about free markets, McManus claims that (1) I overestimate the role of intellectuals (including, presumably, Smith) in shaping the economic order, and (2) I underestimate how much they are in thrall to the economic situations in which they find ourselves. According to McManus:

Most philosophers, theologians, and philosophers are like everyone else. They are primarily shaped by the social forces of their time and tend to approach their jobs with workman-like commitment rather than deep reflection or passionate commitment. In other words, they are mostly products of the economic system that employs them.

These words, especially the last sentence, smack of economic determinism. They are also reflective of just how economistic, ironically enough, many of today’s conservative critics of market economies sound when explaining contemporary social, cultural, and political developments.

I don’t doubt that the culture of a given economy influences many choices of individuals (including intellectuals) living in a particular set of economic conditions. As McManus correctly observes, neither capitalism nor liberal institutions are neutral entities.

Yet when you look closely at events with a heavy economic component, you soon discover the decisive role that is often played by ideas and intellectuals, including long dead ones. Consider, for instance, the Bolshevik Revolution, whose hundredth anniversary occurs this year.

Yes, the Bolsheviks’ successful coup d’état owed much to Russia’s economy collapsing under the weight of war and inept government policies. But would the Bolsheviks even have existed in the first place if the long-deceased Karl Marx hadn’t spent hours sitting in the British Library writing books that, unfortunately, captured the imagination of successive generations of Western intellectuals, including ruthless ones like Lenin, who were willing to act?

Let’s take another example: the near-miraculous liberalization of West Germany’s economy in 1948. Without intellectuals like Eucken and Röpke who had spent decades thinking and writing about how to free Germany’s economy from cartels and monopolies, it’s less likely that Ludwig Erhard’s policies would have been so effective at liberating Germany from the economic fetters bequeathed by seventy-five years of cartels, twelve years of National Socialist rule, and six years of a war economy. If these thinkers’ ideas had merely mirrored Germany’s economic conditions at the time, they wouldn’t have proposed radical measures for change.

Likewise, more than one person has illustrated how closely ongoing disputes about the 2008 Great Recession’s causes and how governments should have responded parallel arguments between Keynes and Friedrich Hayek about the Great Depression that occurred eighty years ago. Keynes died in 1946. Hayek passed away in 1992. Yet their respective analyses and prescriptions continue to form the background for many contemporary economic debates.

I could list numerous other examples of intellectuals and legislators who developed or embraced particular ideas that helped shift economies in particular directions, or whose arguments are indispensable to understanding today’s economic discussions. Certainly, there’s no shortage of status-quonarian thinkers. But—and here I agree with Reno—good and bad economic ideas and those who propagate them matter, much more than we often admit.

The bad news is that they can contribute to our ending up in dystopias like Stalin’s command economy or the flat-earth rural hell inflicted on 7.5 million people by the Khmer Rouge’s French-educated Marxist leaders. But ideas and intellectuals’ commitment to ideas are also indispensable if we want to live in generally free economies that, despite the constant changes they unleash, remain grounded in our nature as embodied moral-spiritual beings who are simultaneously individual, social, rational, free, creative, interdependent, self-interested, other-regarding, sinful, fallible, and yet capable of achieving greatness and transcending mediocrity.

Imagining and developing a market economy that reflects these truths about man is surely a task worthy of conservatives. Michael Novak understood that. So should we.