Alasdair MacIntyre, who is probably the greatest living philosopher, concludes his 1981 masterwork After Virtue by saying, “We are waiting not for a Godot, but for another”doubtless very different”St. Benedict.” In that book MacIntyre argues that a correct understanding of morality is based neither on Kant’s deontology, nor on Mill’s utilitarianism, nor yet on social contractarianism”the three moral systems that dominate contemporary moral discourse. Rather, a correct understanding of morality is based on Aristotelian concepts”primarily the idea that human nature implies a natural telos , or end, with actions being morally right or wrong depending on whether they are properly ordered to that end, and the virtues being consciously developed habits of choosing right actions and avoiding wrong ones. Although this understanding of morality was lost at the beginning of the modern era, living a good human life nevertheless depends on its recovery.

Because achieving the human telos is essentially a shared project among human beings living in community, and because the wider society and the liberal democratic state have no conception of this project, MacIntyre concludes that “what matters at this stage is the construction of local forms of community within which civility and the intellectual and moral life can be sustained through the new dark ages which are already upon us.” Just as, at the fall of the Roman Empire, St. Benedict founded the monasteries that helped preserve Western civilization, so, too, today we need someone to show us how to form small communities that will do the same for us”hence MacIntyre’s reference to St. Benedict. As he elaborated these views, MacIntyre went on to convert, first to a Thomistic understanding of Aristotle and then to Roman Catholicism.

MacIntyre is one of my intellectual heroes. I agree with the central arguments of After Virtue , and I have learned more about morals from MacIntyre than from any other human being alive. It pains me, therefore, to have to disagree with him about anything. As Aristotle said of Plato, however, if we are to be true lovers of wisdom, we must honor the truth more than our friends, and so destroy even that which touches us most closely if truth so demands. I am referring, in this case, to MacIntyre’s views on capitalism”views he reiterated most recently in a lecture last summer at Cambridge University. His immediate topic was the financial crisis of 2007“2008, but he based his discussion on his views about capitalism generally. Early in his life MacIntyre was a Marxist, and although his views subsequently evolved dramatically, he often has said that he continues to accept much of Marx’s critique of capitalism. These views of his are, I shall argue, false, dangerous, and unrelated to an Aristotelian moral philosophy.

The foundation of MacIntyre’s argument about the financial crisis is”believe it or not”Marx’s theory of surplus value. Following classical Marxist theory, MacIntyre defines surplus value as “the difference between what the labor of productive workers earns in wages and what capitalists receive for the products of that labor””that is, the difference between the value of the goods produced by a firm and the amount paid in the aggregate to its workers. Capitalists appropriate this difference and so exploit labor. Of course, capitalists want to maximize their profits and so keep workers’ wages as low as possible. “But, insofar as they succeed, they create a recurrent problem for themselves. For workers are also consumers, and capitalism requires consumers with purchasing power to buy the products that are brought to market. So there is a tension between the need to keep wages low and the need to keep consumption high.”

According to MacIntyre, the capitalists temporarily solved this problem by what he calls “the infliction of debt.” That is, the capitalists marketed to consumers various forms of credit”such as credit cards, home mortgages, and student loans”that allowed consumers to buy the capitalists’ goods now, thus transferring future consumption to the present and creating a false prosperity. “So,” he concludes, “for the moment, for a very considerable moment, the problems arising from the appropriation of surplus value were resolved.”

To extend credit to consumers, however, financial professionals had to invent and market the needed financial products. In so doing, they transferred to others risks “that exposed to ruin millions of people who were quite unaware that they had been thus exposed.” Indeed, the moneymen are in the business of “transfer[ring] as much risk as possible to others” without “explain[ing] to others the nature and extent of the risk that they are taking on.” This is not a mere abuse of the system, but its very essence. In other words, the financial sector is inherently dishonest the way burglary is inherently dishonest. New regulations will not help. Regulated burglary may be better than unregulated burglary, but it is still burglary, and it is still wrong. For MacIntyre something analogous is true for many activities of the financial sector.

If MacIntyre were even close to right about any of this, we would need a revolution, and MacIntyre understands this very clearly. As to the nature of that revolution, sometimes he has been coy, saying that, in waiting for the new St. Benedict, we are waiting for “new and unpredictable possibilities of renewal.” In the lecture at Cambridge, however, he was more definite, describing as examples of the small communities he favors a diesel-engine business founded by two individuals, the collectivist agricultural arrangements of seventeenth-century Guaran” Indians, some of the early Israeli kibbutzim, and the small farmers of Donegal, Ireland, who established a collective to sustain their Irish-speaking community.

Similarly, in the preface to the 1995 edition of his 1953 book Marxism and Christianity , MacIntyre mentions “relatively small-scale and local communities” such as certain ancient cities, medieval communes, and “modern cooperative farming and fishing enterprises.” In these communities “social relationships are informed by a shared allegiance to the goods internal to communal practices, so that the uses of power and wealth are subordinated to the achievement of those goods,” and members of such communities may “pursue their own goods rationally and critically.” This is not clear from the text of After Virtue , but the “local forms of community within which civility and the intellectual and moral life can be sustained” that MacIntyre mentions in that book turn out to be economic communities. We’re waiting not so much for St. Benedict but for St. Vladimir, a baptized Lenin.

Much has gone wrong here, both in economics and in philosophy, and the best place to begin is with Marx’s theory of surplus value. Although Marx regarded this as one of his greatest theoretical results, virtually no one working in economics thinks this theory is correct. The reason is straightforward: The total value of the firm’s product is obviously the combination of all the inputs”not just the labor of human beings but also the raw materials, plant and equipment, intellectual inputs (such as patents and technology), and other factors of production. Marx recognized this but thought capital goods used in production were merely the embodiment of past labor. Even if we were to accept this dubious theory, however, most people would say that the owners of such forms of embodied labor”what we normally call private property”are entitled to the value the use of their property generates. Aquinas, who expressly defends private property as being in conformity with the natural law (indeed, the idea of private property is presupposed by the commandment of the Decalogue against stealing), certainly would have said this, and Leo XIII, in Rerum Novarum (1891), was explicit in his defense of private property, including productive private property, against Marxist attacks.

Workers thus are entitled, not to the full value of the products they produce, but only to the portion of that value due to their efforts”to how much their labor increases the value of other inputs. Under competitive labor conditions”roughly, when there are many employers and many employees, all free to bargain with each other over what wages they will pay and accept”the prevailing wage in a market will equal the increase in value that labor produces. Similarly, under competitive conditions in capital markets, the return on capital will equal the increase in value that the use of capital generates. Competitive markets thus do not exploit labor. On the contrary, they ensure that both labor and capital are rewarded according to their roles in producing goods and services. Marx’s theory of surplus value is simply a fallacy and has long been recognized as such.

Without the theory of surplus value, the rest of MacIntyre’s argument about the financial crisis crumbles, but it is still remarkable for his warrantless and sometimes outlandish assumptions about modern economies. For instance, take the fantasy that capitalists keep wages low to maximize their profits but then endanger the system because they also are reducing the spending power of consumers. There are no fewer than three serious mistakes here.

First, although MacIntyre believes that there is “an entirely one-sided dependence” of labor on capital, in reality capitalists have no ability to keep wages low. In modern economies, wages are set in a very competitive market. There are huge numbers of employers and employees, and employees are well informed about wage rates and voluntarily change jobs frequently. Employers thus are unable to set wages unilaterally because they face effective competition from other employers who will bid wages up to the competitive level. Toyota, for example, can no more set the wages it pays workers in its plants than it can set the price it charges consumers for its cars; it is constrained in the latter case by competition from Honda, GM, and Ford, and in the former case by competition from thousands of other employers. In economic jargon, Toyota has no market power , whether on the car market or on the employment market. Capitalists thus do not determine the wages of laborers. Rather, employers compete with each other to bid up wages. The competitive market for labor does not exploit workers; it protects them from exploitation.

Second, even if a particular employer did perchance have market power on the employment market and so could lower wages, contrary to what MacIntyre says, doing so clearly would be in that employer’s interest. The employer might lose a little in lost sales but would gain much more in lowered labor costs. This is because the employer would capture the entire benefit of reducing its workers’ wages, but the decrease in the workers’ purchasing power would affect the sales of all firms selling to those workers. In other words, all the benefits would flow to the wage-cutting firm, but the costs would be dispersed over a wide range of firms. The bind MacIntyre imagines results not if some firms have market power on the employment market but only if all or most do, which is simply absurd. Or, perhaps, MacIntyre is asking us to believe that all the capitalists are involved in a conspiracy to keep wages low”the largest, most successful price-fixing conspiracy in history, and one that somehow has been overlooked by the Antitrust Division of the Department of Justice.

Third, MacIntyre speaks, as Marxists employing class-based analyses generally do, as if there were one group of people (“the capitalists”) and another group of people (“the workers”) who have opposing interests. This would make sense if, for a large majority of people, their capital were either almost entirely human capital (that is, the potential for performing valuable labor) or almost entirely nonhuman capital (that is, productive property). But this is not true, for, contrary to MacIntyre’s assertions, capitalism has produced a greater equality of income and wealth across society than the human race has known at any time since it overcame its prehistoric, universal poverty. As a result, most people today have a significant mix of human and nonhuman capital. Indeed, over the course of a lifetime, many “workers” in capitalist economies can accumulate capital equal to several years’ wages”a feat that would have been unthinkable in the ancient cities or medieval communes MacIntyre admires.

Furthermore, nowadays almost all large firms are public companies whose shares trade on organized markets such as the New York Stock Exchange or NASDAQ. For most such companies a large majority of their shares (commonly 70 percent or more) are owned, not by wealthy individuals but by such institutional investors as unions, pension funds, and mutual funds. These institutions invest the retirement and other savings of millions of American workers. For example, the California Public Employees Retirement System invests hundreds of billions of dollars on behalf of about 1.6 million employees of the state of California and its counties and municipalities. In other words, we’re all capitalists now. Indeed, the University of Notre Dame, where MacIntyre works, offers its employees the opportunity to invest their retirement savings in mutual funds. I assume MacIntyre lives up to his principles and eschews this opportunity, keeping his savings in cash under a mattress or in Krugerrands in a coffee can, but most of his fellow academics are wage-lowering, debt-inflicting capitalists.

If consumer credit products are not tools in a conspiracy to prop up the capitalist system, why do we have such things? The answer is that a capitalist economy makes financial products available for exactly the same reason it makes iPods, air travel, and sushi available: People want these things and are willing to pay for them. It’s a fact about human beings that, with the accumulation of skills and experience, our earning power increases over time, making it likely that we will earn more per year in our later working years than in our earlier ones. Without consumer credit markets, consumers would have to consume less when they’re young and more when they’re old. Perfectly reasonably, most people prefer a more uniform level of consumption across their lifetimes. Thus, a young couple with good prospects may want to borrow money to provide a spacious home for their children and not cram them into a tiny rental while waiting until the kids are grown and gone before they can afford a big house. Consumer credit thus responds to the reasonable desires of consumers, allowing them to trade future consumption for current consumption.

As to MacIntyre’s theory about the “infliction of debt,” no one is forced to borrow money in a capitalist economy. Debt could only be inflicted if the banks somehow tricked the hapless workers into taking on debt they could not reasonably hope to repay. Of course, no rational lender ever intentionally lends to someone who is unable to repay; that’s a sure way to lose money. All accounts of the financial crisis that involve lenders doing such things founder on this fundamental point. For a while, some people put about the idea that lenders were able to make bad loans and then transfer them to investors by securitizing them. This is a myth. All kinds of loans were securitized for decades without creating such a problem, and all kinds of securitizations, including those of subprime mortgages in the years before the financial crisis, were structured to ensure that loan originators retained substantial risk on the loans they securitized. That’s why, when the financial crisis hit, all the loan originators suffered huge losses and many of them went bankrupt.

Even MacIntyre’s account of how the banks tricked consumers into taking on too much debt cannot stand up to elementary scrutiny. In his view, the banks tricked consumers by not explaining to them the risks they were taking on. But the key event in the financial crisis was the bursting of a bubble in the housing market”that is, a sudden and sharp drop in housing prices. This made many houses worth less than the outstanding balance on the mortgage, which makes refinancing impossible and encourages default. Did the banks know housing prices might crash? While some of them eventually suspected there might be a crash, most never did. We know this because, if they had, the banks could have sold short the relevant mortgage-backed securities and so made , not lost, money when the bubble burst. Because most major financial firms lost money, they clearly did not foresee the crash.

Indeed, before the bubble in the housing market burst, most knowledgeable people, including Alan Greenspan and Ben Bernanke, thought the risk of a bubble in that market was remote. They had good reason for this because, for as long as people had kept reliable statistics, nothing like the sharp decline in U.S. housing prices that we saw in 2007 and 2008 had ever occurred. Lenders may have had slightly better information about the relevant risk than did borrowers in the sense that the lenders knew more precisely how remote the risk seemed based on historical data, but MacIntyre’s story of banks who knew the risks and passed them off on unsuspecting consumers is a fairy tale.

Moreover, imagine what would have happened if, as MacIntyre would have it, the banks had explained to borrowers the nature of the risk they were taking on. As anyone who has ever taken out a mortgage knows, there are countless forms to sign, many of which are disclosure forms explaining various risks. Suppose that lenders were required to add yet another form, this one explaining that the house the borrower was buying might decline in value”might even decline in value by 20 percent in one year, even though such a decline would be unprecedented. How many home buyers would have walked away from the deal after reading that disclosure form? Obviously, almost none. Lenders could have provided the exact disclosure MacIntyre wants, and it would have made no difference at all.

More generally, MacIntyre’s idea that financial professionals make their living passing off risks on unsuspecting counterparties is fanciful. Financial transactions transfer risks, but in general financial institutions make money, not by passing off risk onto others, but by either intermediating financial relationships or accepting risks that they can bear more efficiently than can their counterparties. For example, commercial banks take deposits from consumers in the form of checking and savings accounts and lend money to consumers and businesses in the form of mortgages and commercial loans. The banks thus intermediate between people who want to save and people who want to invest”an important social function. Moreover, because the deposits have to be returned on demand, but the loans generally are repaid only after many years, commercial banks are borrowing short term and lending long term. They thus accept interest-rate risk from their depositors and credit risk from their borrowers. Because banks have expertise in computing these risks, they can bear them more efficiently than can other parties. In this way commercial banks serve the common good by reducing the cost of capital, which makes it easier for individuals and businesses to invest in projects that increase the total stock of goods and services for everyone.

Capitalism efficiently delivers goods and services, but it is not a perfect system”far from it. To be sure, capitalism has costs of various kinds. It is a key insight of modern economics, however, that all solutions to a given problem have costs, and we delude ourselves if we think we can find a perfect (in the sense of costless) solution. Despite its costs, capitalism has raised up from poverty hundreds of millions of human beings, fed, housed, and clothed them vastly better than their ancestors, lengthened their lives and preserved them from disease”and all in ways that people living in early ages could not possibly have imagined. When people respond to the financial incentives capitalism creates, they often are not doing much to improve their souls, but the capitalist system has done more”much more”to improve the material conditions of mankind than all the corporal works of mercy performed by all the Christian saints throughout the ages. For this reason a foundational attack on capitalism is an attack on the material well-being of the human race and especially an attack on the poor, who have been most helped by capitalism.

MacIntyre concedes that “capitalism has been able to generate material prosperity at a higher level and for more people than any other economic system in human history.” He thinks this is irrelevant, however, because, even if it makes everyone better off materially, capitalism is still systematically unjust. His primary argument for this is Marx’s surplus theory of value, which, as we have seen, is quite untenable. MacIntyre also has two philosophical arguments, however, and both are related to his Aristotelian moral philosophy.

First, MacIntyre argues that capitalism is immoral because it systematically teaches people to regard as a virtue the vice of greed. Capitalism does this by educating people to regard themselves primarily as consumers so that “what constitutes success in life becomes a matter of the successful acquisition of consumer goods, and thereby the acquisitiveness which is so often a character trait necessary for success in capital accumulation is further sanctioned.” Indeed, “the drive to have more and more becomes treated as a central virtue.”

We may waive the latent contradiction in this accusation (no one can both consume too much by buying things and save too much by accumulating capital) because the more serious problem is merely to determine what MacIntyre means. He cannot mean that capitalism is the cause of greed, for greed is a universal human failing known in all cultures.

As MacIntyre himself notes, the Greeks knew the “drive to have more and more” as pleonexia , and both the Old and New Testaments condemn it. In the Middle Ages Aquinas knew that some people mistakenly believe the final end for man consists in riches, and Dante, who rails against avarice throughout the Divine Comedy , describes, in the Convivio , the precise phenomenon MacIntyre associates with capitalism: “We see little children setting their desire first of all on an apple, and then growing older desiring to possess a little bird, and then still later desiring to possess fine clothes, then a horse, and then a woman, and then modest wealth, then greater riches, and then still more” because “acquisition causes human desires to become progressively inflated.” Moralists in non-Western cultures say similar things. Perhaps MacIntyre means that people living in capitalist economies are greedier than other people, but this would be very difficult to verify empirically.

So what does MacIntyre mean when he says capitalism teaches that success in life means acquiring more and more possessions? Clearly, even in capitalist societies, almost no one actually says such things, and most people sincerely believe the opposite. MacIntyre thus seems to mean that, regardless of what people say or even believe, capitalism presupposes such a view. In fact, however, capitalism implies nothing about the end of human life. Capitalism is a system of legal rules, most of them concerning private property, the enforceability of contracts, and minimal governmental intervention into economic transactions, and it is manifestly compatible with a great many views about what the final end for man may be.

Capitalism does, indeed, facilitate the accumulation of wealth, and so someone believing man’s life consists in the abundance of his possessions would favor a capitalist system. That does not mean, however, that capitalism presupposes such a view or even encourages it. For example, suppose (as I believe is correct) that human beings, as rational creatures, are individually responsible for ascertaining the true final end of human life and for ordering their actions to this end. In this case a capitalist system may seem appealing because it guarantees human beings freedom to order their lives as they judge best. The philosophical justification for capitalism is not pleonexia, but freedom.

The connection of capitalism and freedom brings us to MacIntyre’s final philosophical argument against capitalism. As an Aristotelian, MacIntyre holds that the true final end can be pursued only by human beings acting together in a community. For this reason, “the best type of human life, that in which the tradition of the virtues is most adequately embodied, is lived by those engaged in constructing and sustaining forms of community directed towards the shared achievement of those common goods without which the ultimate human good cannot be achieved,” such as “families and households, schools, clinics, and local forms of political community.” As an Aristotelian I agree and note that such communities not only are possible within capitalist systems but are also obviously supported by them. I even agree with MacIntyre that communities supporting the shared pursuit of the human good may include noncapitalist economic communities such as communes and cooperatives. The problem comes when MacIntyre insists that these noncapitalist economic communities are not only permissible but also required. He is insisting that one way of sharing the pursuit of the good is the only way of doing so.

This is sheer dogmatism. The final end for human beings can be adequately pursued only in community with other human beings, but it does not follow that every community in which human beings participate must be dedicated to that end. Everyone participates in many different communities”nuclear family, extended family, school, business firm, church, military unit, government, etc. As long as enough of these are cooperative endeavors aimed at the human good, there is no need that all be such, provided only that none aims at an end incompatible with the true human good. Of course, MacIntyre thinks that the capitalist economy aims at such an end (that is, the pure accumulation of wealth), but he is wrong about that. A person can participate in the capitalist economy to provide a sufficiency of goods for himself and those under his care so that he and they may conveniently engage in other activities (many of them communal) that are more directly concerned with the final end for human beings.

There is thus no necessary connection between cooperative economic communities and the pursuit of the human good. Moreover, insisting on this connection imperils human freedom. All human projects of significant scale, including the economic communities MacIntyre favors, require the cooperation of many individuals. Throughout history such cooperation usually has been secured by coercion and, ultimately, the use of force. The genius of capitalism is that, by relying on markets, it allows human beings”even vast numbers of human beings”to coordinate their economic activities voluntarily”that is, freely . By giving people economic incentives to work together, capitalism allows amazingly adroit cooperation on the grandest scale.

MacIntyre’s small economic cooperatives are fine for people who voluntarily choose to participate in them, but they necessarily limit human freedom. What happens, in MacIntyre’s cooperative farming or fishing enterprise, to the young person who doesn’t want to do the work the cooperative’s governing committee assigns to him? What happens to a young Alasdair MacIntyre who wants to study Greek philosophy rather than grow potatoes, or to a young Yo-Yo Ma who wants to practice the cello rather than work a fishing boat? These are not fanciful cases. In England in the 1940s, to implement its economic plans, the Labour government needed to move workers out of some industries and into others, and under the Control of Engagements Order that is exactly what it did: The government ordered people to work in the mines under penalty of law. In the end, implementing command-and-control economic systems, whether large or small, requires tyranny.

MacIntyre is a great philosopher, and the mistakes of great philosophers are always instructive. MacIntyre thinks noncapitalist economic systems are necessary to living the good life because he already has dismissed capitalist systems as immorally aiming at the endless accumulation of wealth. But why does he think capitalism does this? There is a deep reason. MacIntyre, following Aristotle, presupposes that all communities or systems are ordered to some purpose or other. For most communities or systems, this is correct. The nuclear family is ordered to the procreation and rearing of children, the church to the eternal salvation of souls, and so on.

MacIntyre thus assumes that there must be a purpose to capitalism, and because capitalism is so well adapted to producing endless wealth, he concludes that the production of such wealth must be capitalism’s purpose. If I had to assign a purpose to capitalism, I would say the same. In fact, however, not all communities and systems have purposes in this way. Some communities and systems exist not to further a given purpose but to create the conditions necessary for individuals or groups to pursue any of various, even conflicting, purposes. The laws of war, for example, exist to structure a relationship between parties with the most sharply conflicting purposes. Capitalism is such a system, too, as are many other institutions of liberal democracies. The market exists, not to advance any particular purpose, but to facilitate the advancement by individuals of their various, even conflicting, purposes. It is precisely because capitalism is such a system that it can”and does”protect individual freedom.

Finally, although capitalism is not directed to a particular purpose, this does not mean capitalism is morally neutral. As with all human institutions, capitalism has moral presuppositions, just not the ones MacIntyre identifies. The key moral presupposition of capitalism is, in fact, that each person is entitled to the value he creates, whether through his labor or his property. As Milton Friedman pointed out, this principle is so natural that Marx himself presupposes it in the theory of surplus value. For if, as Marx says, capital exploits labor by appropriating part of the value labor creates, this can be unjust only if labor is entitled to the value it creates. The suppressed premise here is exactly the capitalist principle that everyone is entitled to the value he creates. MacIntyre, no less than Marx, implicitly adopts this principle in espousing the surplus theory of value. He may be waiting for St. Vladimir, but MacIntyre is a capitalist unawares.

Robert T. Miller teaches at Villanova University School of Law and is the associate director of Villanova’s Ryan Center for the Study of Free Institutions and the Public Good.