Editors’ Note:

This essay is adapted from a James Madison Program event on April 10, 2024, in Princeton, New Jersey. Oren Cass and Samuel Gregg discussed the right and the future of capitalism in the American founding and offered their perspectives on the conservative approaches to markets and the economy.

The editors lightly revised the transcripts for clarity and added the links to sources with more information on the points discussed.

Today, we are sharing Oren Casss remarks. Tomorrow, we will share Samuel Greggs

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It seems to me the question we need to address is what has happened to capitalism. Businesses still pursue profit, certainly, but not in the ways that are advancing the public interest. The statistic that I find most striking is that over the past fifty years, corporate profits, even adjusting for population growth, have risen about 185 percent. During the same period, wages rose 1 percent. American industry lost its technological edge in everything from semiconductors to aerospace to robotics. Investment stalled so much so that the entire corporate sector is now a net lender disgorging cash into financial markets faster than it borrows it. 

As American Affairs editor Julius Krein has observed, if a trillion dollars in annual stock buybacks are to be taken at face value and there are no better Investments to be made, it calls into question the viability of the free market capitalist system itself. And we should recognize that the things we’ve been taught, that we believe, don’t actually seem to be true. Managers are supposed to be accountable to owners, but the latter’s identity is no longer discernible. Most shares are held in passive funds, often on behalf of pension plans, on behalf of retirees or taxpayers, or else overseas, often in sovereign wealth funds. 

Comparative advantage is supposed to allow developed economies like ours to specialize in the most advanced and high-tech sectors. Yet the U.S. trade balance in advanced technology products has swung from a $60 billion surplus at the end of the Cold War to a $200 billion deficit at the start of COVID. 

Innovation is supposed to drive productivity, and yet, over the last ten years productivity in our manufacturing sector has declinednot its growth rate has slowed: productivity has declined. You need more labor in an American factory today to produce the same things that you would have produced a decade ago. And this system’s malfunction has dire human consequences. Whereas forty weeks of the typical male earning would have supported a family of four in 1985, by 2022, you needed sixty-two weeks of income (which is a problem because there are only fifty-two weeks in a year). Nearly half of Americans report having fewer children than they want. And outside of the very highest income, highest educated classes, the most frequently cited reason is affordability. The average American can no longer expect to earn more than his father did. Poorer regions can no longer expect to catch up with wealthier ones. The bottom 50 percent of households had less wealth in 2019 than in 1989, during which period the top 10 percent added 29 trillion [dollars]. Life expectancy, as has been well covered, has been falling. 

So, what’s been going on?

In The Wealth of Nations, Adam Smith described conditions under which the private pursuit of profit advances the public interest. I want to read to you the famous sentence about the invisible hand because I think it is so often misunderstood: 

By preferring the support of domestic to that of foreign industry, . . . and by directing that industry in such a manner as its produce may be of the greatest value, . . . [the capitalist is] led by an invisible hand to promote an end which was no part of his intention.

The Invisible Hand isn’t a magical force that makes capitalism work automatically. It’s actually a truism that if capitalists seek the expansion of domestic value creation as their best route to profit, then the nation will benefit.

But what about the converse of that? What are we seeing today if the hard capital and labor-intensive work of extracting natural resources, raising agriculture, building infrastructure, and manufacturing products offers a less attractive investment profile than developing a cloud-based application that might scale quickly to a few million users? Capitalism does not work, nor would Adam Smith have said that it worked, if firms facing pressure to raise wages, improve conditions, or otherwise invest in American workers and productivity can instead offshore production or import foreign labor for jobs Americans won’t do. If top business talent finds it can earn more money trading assets in circles than [by] making productive investments in the real economy, capitalism will not work. The market will deliver the profitwe’ve certainly learned thatbut it will also deliver national decay. 

So what does this have to do with conservatism? 

It seems to me that rebuilding American capitalism is a quintessentially conservative task. Libertarians have essentially opted out of the process. They can’t understand that capitalism requires anything more than freedom, nor will they countenance a role for government in providing it. Progressives are disdainful of a system that leaves so much to private ordering and they’re eager to provide public programs where the markets will not. Only conservatives have the necessary gratitude for a free enterprise system that both grants liberty and imposes obligations, and comprehension of the need for institutions and constraints on market actors to productively channel their ambitions. 

On the one hand, yes, it’s absolutely true. Conservatives value the unique properties of the free market to allocate resources efficiently and [to] empower people to limit the power of central government to evolve over time in response to real-world conditions. But conservatives also recognize that markets have drawbacks and limitations, that the free market can reduce people to consumers and relationships to transactions, that it will in every case prioritize efficiency over resilience and individual self-interest over the common good. Unfortunately, conservative economics was supplanted on the American right-of-center over the past forty years by a market fundamentalism that saw capitalism as “just another word for economic freedom” in Senator Pat Toomey’s words. The task for policymakers in that frame is simple. To quote Jack Spencer, former vice president of the Heritage Foundation Institute for Economic Freedom and Opportunity, “Why don’t we look at a policy and just ask: does it expand economic freedom?” 

With that attitude, conservatives relinquished any right to advance a positive vision beyond free individuals exercising free choice in the market, each presumably able to optimize his own life. And that leads to thinking like what we hear from the American Enterprise Institute where Scott Winship, director of the Center of Opportunity and Social Mobility, argues: “Americans have voted with their walletsfor more stuff, smaller families, and less time devoted to housework, raising kids, and investing in communities.” What’s underlying this is a blind faith that is an actual clearly stated assumption. As Professor Glenn Hubbard, President George W. Bush’s economic advisor, said: “The goal of the economic system [is] optimizing consumption.” If you believe that, then what America makes, or whether America makes anything at all, does not matter. And that is, again, an explicitly stated assumption. Michael Boskin, chairman of the elder Bush’s Council of Economic Advisers, famously quipped: “Computer chips, potato chips. . . . What’s the difference?” 

From that starting point, you get an agenda of tax cuts, deregulation, and free trade. It’s well suited to an ideology of freedom that’s disconnected from any conception of human flourishing. But we shouldn’t be surprised that the economic policy was a disaster for the nation. Globalization crushed domestic industry, leaving collapsed communities in its wake. Financialization shifted the economy’s center of gravity from Main Street to Wall Street, fueling an expansion in corporate profits alongside stagnating wages and declining investment. The decline of unions cost workers power in the market, voice in the workplace, and access to a vital source of community support. 

These trends, actively cheered on by a Right that I don’t think we can at all call conservative, contributed to rising inequality, slowing innovation, narrowing of opportunity, and the loss of middle-class security. And as with any fundamentalism, this reality was happily reframed as a beneficial and coherent narrative. Any market outcome, no matter how socially corrosive, we were told, was the right one. Broad regions experiencing economic decline was natural and beneficial “creative destruction” and a cue for left-behind residents to move to opportunity. Business talent flocking to hedge funds, private equity paydays, was efficient and a source of “enormous social value” created by financial engineering and trading assets in a circle. If China’s state-owned enterprises dump cheap products into the American market, pulling expertise and investment across the Pacific,  American consumers could merely enjoy the bounty at the Chinese Communist Party’s expense. 

The American dream wasn’t dead. Cars were cheaper. They had seat warmers. Our televisions were larger. And if economic growth were the only goal, what else could be done? 

As Club for Growth founder Steve Moore remarked in a recent debate with me on immigration and wages, “Cheap labor leads to a booming stock market? That benefits everyone.” 

How is any of this conservative? And for that matter, how is any of it capitalism? It has become popular in segments of the old Right to lament that conservatives are turning their backs on free markets and capitalism. I saw an advertisement for this talk as: “Should conservatives rethink their commitment to free market principles?” No. What we need to do is reclaim our commitment to free market principles and rescue capitalism from the fundamentalists who have warped it beyond recognition.

Let me take a moment to dig in on this. I use “fundamentalist” not as some sort of casual pejorative but as a precise and descriptive indictment. The fundamentalism that we’ve seen on the right of center when it comes to economics insists on a strict adherence to dogma with an attendant commitment to explaining away any evidence to the contrary. It fosters allegiance to an in-group and aggressively polices the outgroup for insufficient purity. It demands faith in an inaccessible absolute. It brooks no complexity. It offers no opportunity for reason. And it professes to represent unpolluted and original truths even as it requires extensive and selective reinterpretation of the sacred texts.

Once you’re listening for the telltale signs, it’s hard to hear anything else. 

Conservative economics, unlike the fundamentalism that supplanted it, embraces reason. As conservatives, we begin with a confident assertion of what the market is for and then consider the public policies necessary for shaping markets toward that end. The conservative conception of the common good requires a free market economy in which, yes, people can transact freely, but also in which all people can choose their own life course and through their productive efforts contribute to their communities. Where they can support families. Where they can raise children prepared for the same. 

This is a much richer notion of freedom than merely the market transaction. It’s attached to obligation. It recognizes that with economic rights come economic responsibilities. And the conservative vision thus asks more of markets, not only to allocate capital to productive uses, not only to serve consumers at the lowest price, but also to create a range of secure and dignified jobs and to produce growth that is widely shared and sustainable. 

The industrial commons requires protection to ensure that it’s capital-based, that its talent pool and centers of innovation fuel productivity gains and provide for the national defense. The labor market requires protection to ensure that the nation’s workers are essential to economic success and prepared to contribute to it. And the social fabric requires protection to ensure a sense of place, caring relationships built on mutual obligation, and the solidarity to solve problems and counter threats. 

I’m optimistic because capitalism properly understood can do all those things. One only need look at the first 200 years of American history where America went from colonial backwater to continent-spanning industry colossus to have confidence that it’s possible. 

But how did we do that? Not with free market fundamentalism. That wasn’t what the founders were talking about. That’s not what Abraham Lincoln was talking about. That’s not what Theodore Roosevelt was talking about. We did it with a robust national economic policy that promotes development through aggressive public investment involving industry and infrastructure, through heavy involvement in the financial system, through regulation for safe and equal access to vital public services. We pioneered public education. We pioneered organized labor. And we had, for most of our history, the highest tariffs in the world, behind which our domestic industry was allowed to develop and thrive. 

Those were not exceptions to American capitalism. Those were its scaffolding. 

In the twenty-first century, capitalism itself, and the public policy supporting, it look different.

This is not a nostalgic exercise in returning to the past. I prefer the analogy of what happens after an earthquake levels a city: the disaster causes great suffering, but it also exposes poor construction. It crushes unsuitable structures. It provides the opportunity to modernize. And rebuilding from that doesn’t mean recreating the old city. But it does mean building something that retains its character and preparing to better serve its residents for decades to come.

I want to conclude by making this concrete and highlighting two broad ways in which markets do in fact require assistanceor dare I say interventionif capitalism is to function well. You can think of these as the macro and the micro, the top-down and the bottom-up, the shape of the markets, the institutions within them. I tend to speak in terms of, on the one hand, productive markets, and on the other hand, supportive communities. 

In the twenty-first century, capitalism itself, and the public policy supporting, it look different.


First, productive markets. As the term implies, not all markets are productive. What we are looking for is markets whose conditions and constraints channel investment toward the most valuable uses for workers, for the broader economy, and for the nation. For instance, we must embrace the principle that making things matters and boost investment in critical Industries. It’s a simple principle, isn’t it, that making things matters? So obvious to anyone without an economics degree and yet so quickly squeezed out of those who pursue one. Acknowledging it requires acknowledging a limit on the market, a need for intervention. And so instead, the free market extremists simply deny it. They try to say with a straight face that making things doesn’t matter. That’s the fundamentalism at work. Conservatives reject such thinking. 

The second area is supportive communities. Policymakers must help reinvigorate the institutions that operate alongside and within the market. The American labor movement has devolved into a dysfunctional and sclerotic collection of unions that fail to advance workers’ interests or represent many at all. But the idea of a strong labor movement, actual representation for workers, their ability to act on an equal playing field with management and capital, is vital for capitalism to function well. Public education, which has become obsessed with college prep (and does it poorly) is not at all what Americans want. They want to see an education system that helps students develop the skills and values they need to build decent lives in the communities where they live. And at the foundation of it all, families must form and flourish where capitalism succeeds and people thrive. 

This is true partly because families are important to a well-functioning capitalist system, but more because they are themselves its proper end. Families don’t exist to support capitalism. Capitalism exists to support families. The decision to form a family and raise children is not a consumption choice. It’s not an experience to be weighed against a nice vacation or more time for gardening. It’s the basic obligation of life and citizenship incurred by virtue of having been born and raised oneself and by virtue of enjoying liberty and prosperity in a nation built through that same work performed countless times across generations. A capitalism that avows neutrality on the importance of this pursuit compared to others rather than upholding it as the highest good has no future and does not deserve one.

I wonder why we bother to call it capitalism at all.

Image by Lazy_Bear and licensed via Adobe Stock.