In a remarkable interview in Barron’s [subscription required] this week, David Richards said that he thinks the world economy is on the road to even greater heights of glory. One of the reasons given is that the “Theology of Capitalism” is sweeping the globe.
Everywhere you look, people seem to be bowing down to the holy ghosts of Smith and Keynes… and reciting the Gospel according to Markowitz. And like the other great secular theology of our time, global climate change, the faithful ask few questions. Instead, they become true believers without so much as going blind, like Paul, or winning an important battle, like Clovis. Too bad. Because there are a lot of questions that need to be asked.
What is this new god? What sacrifices does he require? What are this new religion’s solemn rites? What are its feast days and holidays? Who are its sinners, its saints, its Lucifers and its prophets?
In the interest of helping Markets and Money readers understand this new faith, here we offer a brief explanation…
We begin with the history of the cult. In the beginning, there was the word. And the word was ‘money.’ But what was money? Ah, there, we have our first and most important holy mystery. In the past, more or less from the beginning of time until August 15, 1971, money was rare and difficult to reproduce. The Yap islanders, for example, used large, carved stones to represent wealth. Most of the rest of the world used gold and silver.
Since 1971, however, the high priests of the new money cult produced a kind of miracle, equivalent to the virgin birth and the wedding feast at Cana combined. That is to say, they produced money with no connection to anything rare or valuable. In the words of St. John Maynard Keynes himself, they created money “out of thin air.” This miracle has had the whole world agog ever since. Today, the world’s entire economic and financial system operates on this faith-based money.
Thin air was never more forthcoming. No one knows where the money comes from or what it is worth; but everyone is happy to take delivery. Indeed, the multitudes worship it…and pray for it. Muslims go to mecca; Jews have their Wailing Wall; these mammon-worshipers dream of nothing more than getting a job on Wall Street and getting lucky in Las Vegas.
It is upon this miracle money that the whole faith rests. Saint Alan of Manhattan owes his reputation to it. Goldman (NYSE: GS) and Merrill Lynch (NYSE: MER) can trace much of their success to it. Asia’s huge export boom was made possible by it. But so were the booms in leveraged buyouts… and subprime mortgage lending. If Christ had not risen from the dead, he would be just another prophet. And if Alan Greenspan had not created trillions of dollars worth of new credit from nothing, the present boom would have not reached the Hindenburg Bubble proportions it is today.
In this sense, the new creed is more like a ‘cargo cult’ than a sophisticated religion. After WWII, anthropologists discovered isolated groups of savages in the South Pacific who were worshipping crashed U.S. Army cargo planes. The planes had brought them food, clothing, tools, cigarettes and alcohol. The islanders saw these things as gifts from heaven, and developed religious beliefs around them. So too does the modern Theology of Capitalism look to the skies over its central banks for cash. If the money ever seems to run short, U.S. Fed chairman Ben Bernanke is on record saying he will drop it from helicopters!
This week and last, capitalism’s markets shook like the Western Front in 1914. The archbishops of the new church put on their purple robes and rushed to reassure the world. Like priests in the trenches of WWI, their faith was reinforced by the bombs bursting around them. Our new gods will never abandon us they said. Why? Because now we are all believers in the Theology of Capitalism! This reminds us of Mr. Angell’s popular book put out in 1910, which argued that peace in Europe was guaranteed, because all Europeans had become capitalists. Since they traded with each other for so many good things, none would ever want to go to war. Well, now that even the Russians and Chinese believe in the Theology of Capitalism what could go wrong? We will have peace, prosperity and high asset prices forever and ever, amen.
Capitalism, of course, has been with us for millennia. You can look at cuneiform inscriptions in Egypt and find evidence of capital investment, trade and speculation. Capitalism has been alternately enriching and ruining people ever since. Grinding, churning, innovating, and evolving… always unstable, capitalism is always driving forward in what Schumpeter called a process of ‘creative destruction’ – sometimes squeezing the rich, as though through the eye of a needle…sometimes rewarding the meek…and always punishing those who expect to get something for nothing. To the extent it is understood as the free movement of privately owned capital, capitalism is a harsh, unforgiving Old Testament kind of god. For as soon as a man gitteth, along comes a new wave of destruction to taketh it a way from him. And in a crisis, he might just as well cling to an exploding hand grenade. That is why, as soon as a fellow is flush, he wants nothing more than to put a stop to capitalism forever. He asks his legislators for protective tariffs. He implores his leaders for import duties and exchange controls. He begs his central bankers to fix interest rates at a more commodious level.
The old capitalism is dead, say converts. This is a New Testament faith; the tooth and claw jungle of capitalist evolutionary competition has been transformed into a healthy, stable and cooperative eco-system – like a public zoo. Now the animals are in their cages. Lions will lie down with lambs…and suckers will all get an even break.
We’re all believers now. Hallelujah.
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