Capitalism is a form of economy that values a free market rather than a restricted market. Capitalists believe that value arises naturally from supply and demand, rather than artificially by the hand of the government. If the rule of law is in place, and if the economy is undergirded by an overall moral citizenry, then the prices of goods will tend to reflect the underlying supply and demand. Capitalists want citizens to own property and workers to receive the monetary reward for hard work, creativity and excellence in their labors. In a nutshell, they believe that a free market is the economic system for helping people to flourish in a fallen world.
The Bible does not actually set forth a preferred economic system paired with a preferred system of government, so we have to be creative in trying to figure out which type of economic and political system best fits biblical principles. A Christian thinker named Michael Novak wrote an important book, The Spirit of Democratic Capitalism, in which he argued that biblical principles can be honored best in a democratic capitalist system.
Here are two of his strongest arguments:
- The free market encourages competition, which in turn provides incentive for people to build better businesses and create better products and services. This sort of economic progress, if it accompanied by a moral citizenry, will provide all sorts of benefits to a society. The better the products and services we provide for one another, the more likely we are to flourish. God will not judge us for creating wealth, but for our use of it. He blesses us so that we can bless others.
- The Bible encourages us to build societies that respect the realities of a fallen world. Marxism does not do that; it seeks to create a utopia, a human version of the kingdom of God. But capitalism recognizes, for example, that fallen people generally need economic incentives in order to do their best work.
God will not judge us for creating wealth, but for our use of it.
Novak’s argument for free-market capitalism is much broader and deeper than what I’ve described, but those two arguments are examples of how we can apply biblical principles to economic realities.
Yet, even though free-market capitalism is our preferred economic system, it can be corrupted and misdirected. In Two Cheers for Capitalism, Irving Kristol rightly cautions free-market proponents not to be so enthusiastic for capitalism that they self-destruct. In our support for the free market, therefore, we must be ware of potentially destructive misdirections.
One way we can misdirect the free market is by idolizing the goods and services offered by the market. The free market does not itself make judgments on what people buy or how much they buy. People can buy (almost) anything they wish, as long as they can pay for it. In allowing that type of liberty, the free market opens the door to materialism and consumerism.
Materialism is the belief that we will be happier if we acquire more goods and services, while consumerism is our preoccupation with acquiring those goods and services. The materialist-consumerist mindset is idolatrous, because consumption becomes a functional savior offering the sort of redemption that only Christ can offer, and promoting the sort of utopia that will exist only in the new heavens and earth. Not only individuals but also entire societies can make an idol out of the consumption of material goods and services.
Another way we can misdirect the free market is by fostering an unhealthy relationship between the government and large corporations, a relationship we can call “cronyism” or “corporatism.” In cronyism, the government uses regulators to control corporations. Significantly, and to the detriment of a free market, many of the regulators work in the very offices of those corporations, as if the regulators were actually now a part of the corporation. Government officials can be attracted to this model because they are able to control the corporation. If things go bad, the government can blame the corporation, but if things go well, the government can claim credit. Large corporations can be attracted this model also, because they are able to collude with the government to prevent competition and to protect themselves.
The free market opens the door to materialism and consumerism.
In addition, in the United States there are strategically important financial institutions so critical to our economy that the government protects them. The government “gives” to these institutions by protecting them financially in such a way that they cannot fail, but in return “takes” from them the regulation of their own business. Alexis de Tocqueville predicted this approach in the 18th century and called it “soft tyranny.”
We don’t have the space to go into greater detail, but let’s summarize crony capitalism by saying that it exerts too strong a control over free enterprise. An optimal free market is one that keeps government from controlling businesses and encourages healthy competition between businesses, which in turn incentivizes businesses to create better products and services. This free-market environment, if it is supported by a moral citizenry, will provide the optimal environment for its citizens to flourish.
Overall, capitalism is a helpful form of economy. As Michael Novak argues, biblical principles can be honored best in a democratic capitalistic system. But capitalism is not perfect, and we must beware its potentially destructive misdirections.
 Michael Novak, The Spirit of Democratic Capitalism (Lanham, MD: Madison, 1991).
 For further reading, see Jay Wesley Richards, Infiltrated: How to Stop the Insiders and Activists Who Are Exploiting the Financial Crisis to Control Our Lives and Our Fortunes (Chicago: McGraw-Hill, 2013).