President Trump's declaration last week that "America will never be a socialist country" (video), followed by the release of the Green New Deal plan endorsed by many Democrats, has given rise to much discussion re: the relative merits of capitalism and socialism.

As you know, SMI focuses on investing and personal finance, rather than the larger context of economic theories and models. Still, it's important to have a general understanding of the assumptions and goals of the competing approaches to economics and government.  

Three economic models

Here's a brief overview of capitalism and socialism as seen from a Christian perspective, along with information on distributism, a "third-way" economic model championed by (among others) notable Christian thinkers G.K. Chesterton, Hillaire Belloc, and Dorothy Sayers. 

Keep in mind that there are degrees of capitalism, socialism, and distributism, so the information below only scratches the surface. Also keep in mind that these schools of economic thought are as much about political philosophies as they are about economics. 

Capitalism: Capitalism is a system in which the modes and means of production are privately owned and economic activity is lightly or moderately regulated by government. This system allows markets to allocate resources based on the decisions of individual producers and consumers.

Some Christians are critical of capitalism, arguing that it tends to exploit workers and leads to dangerous concentrations of capital and power. Further, as theologian David Bentley Hart complains, capitalism fosters a "consumerist" mindset. "[T]he entire system depends not merely on supplying needs and satisfying natural longings, but on the ceaseless invention of ever newer desires, ever more choices," he writes. "It can continue to create wealth sufficient to sustain the investment system only by a social habit of consumption extravagantly in excess of mere natural need or even (arguably) natural want."

Christian capitalists, however, have a much different view. While conceding that capitalism may have its flaws (and, yes, fostering a "consumerist" mindset is one of them), they argue that it remains the best economic system both for alleviating poverty and spreading broadly the benefits of prosperity, thus helping to create an ongoing ethos of freedom and creativity.

"No other system has so quickly lifted the world out of poverty," wrote the late Michael Novak, author of The Spirit of Democratic Capitalism. In addition, he noted, capitalism fosters good stewardship because it "requires the willingness to make sacrifices for gains only future generations will see."

Socialism: Socialism is a system in which the government owns the basic means of production. Through taxation and wealth redistribution, the government allocates resources and makes decisions over property, prices, and production.

Some Christians have embraced the idea of a socialist system specifically because of its wealth-redistribution aspect, believing that socialism reflects the kind of caring community described in Acts 4:

[N]o one said that any of the things that belonged to him was his own, but they had everything in common.... There was not a needy person among them, for as many as were owners of lands or houses sold them and brought the proceeds of what was sold and laid it at the apostles' feet, and it was distributed to each as any had need. (Acts 4:32, 34-35)

To infer that the Acts 4 passage is a model for state-imposed socialism, however, is to misread the text, according to pastor and author John Piper. He argues that such an interpretation ignores the larger New Testament context, as well as the evidence of history.

Socialism borrows the compassionate aims of Christianity in meeting people's needs while rejecting the Christian expectation that this compassion not be coerced or forced. Socialism, therefore, gets its attractiveness at certain points in history where people are drawn to the entitlements that Socialism brings, and where people are ignorant or forgetful of the coercion and the force required to implement it.

Distributism: This approach, much lesser known than the other two, views both capitalism and socialism as deeply flawed, and as essentially two sides of the same coin. Both systems, distributists argue, inevitably create concentrations of power and resources that war against the "common good." Some distributists even argue that capitalism inevitably leads to a type of socialism, as big businesses forge increasingly close ties with those in political power (i.e., "crony capitalism").

Here is a quick summary of the distributist view:

According to distributists, property ownership is a fundamental right, and the means of production should be spread as widely as possible, rather than being centralized under the control of the state (state capitalism/state socialism)...or corporations (corporatocracy). Distributism, therefore, advocates a society marked by widespread property ownership. 

Or, as another pro-distributist summary puts it: "Distributism is a political economy championing the sustainability of decentralized, local economies with the aim of ensuring the widest ownership of the means of production. The solution to our present socio-economic malaise is an economy [constructed] as if people and God mattered."

The big questions for distributists are: How practical is distributism? How can a decentralized model be implemented in a world in which power and resources already are heavily concentrated? (In other words, would distributism require redistribution?) 

Learn more

As noted earlier, this overview only touches the surface of these approaches to economics. If you'd like to learn more, here (in no particular order) is a list of helpful books and recent articles, along with one audio resource: