This is one of those questions where the answer can only be given once it is clear what is meant by capitalism. John Paul II put the question to himself about whether capitalism is a model to be followed. He answered: “If by capitalism is meant an economic system which recognizes the fundamental and positive role of business, the market, private property and the resulting responsibility for the means of production, as well as free human creativity in the economic sector, then the answer is certainly in the affirmative…” (Centesimus Annus, #42). So clearly there is an understanding of capitalism that the church approves.
On the other hand, John Paul also stated: “But if by capitalism is meant a system in which freedom in the economic sector is not circumscribed within a strong juridical framework which places it at the service of human freedom in its totality, and which sees it as a particular aspect of that freedom, the core of which is ethical and religious, then the reply is certainly negative” (Ibid.). Very much in keeping with the legacy of CST, John Paul is wary of a capitalism which exalts freedom to the extent that justice, rights, the common good and human dignity are sacrificed. This is why he stipulates that economic freedom be understood in the context of a “strong juridical framework.” A false capitalism takes one part of human freedom, economic liberty, and makes of it the whole story.
Within CST there is an appreciation for the utility and virtues of a market economy. But this fundamental acceptance of a free market economic model is always tempered by concerns that self-interest not override the common good, that unregulated freedom not lead to exploitation of others or of creation, that appreciation for material prosperity not create false understandings of human development and well-being.
Perhaps a fair summary of the position of CST on capitalism is that it gets a conditional approval; it is not inherently wrong but false renderings of capitalist economics, which have existed in the past and continue in the present, must be opposed.
One can comb through the documents of CST and find a list of ills in capitalism to be remedied. It is possible to arrange the list of papal concerns under four headings: (a) establishment by the state of a juridical framework to regulate market operations, (b) communal provision of basic goods/services for all, (c) promotion of personal and group morality, and, finally, (d) protection of voluntary associations and other elements of civil society (Daniel Finn, “John Paul II and the Moral Ecology of Markets” in Theological Studies, vol. 59 [1998] pp. 662-79).
Juridical framework means that government must establish fair and wise regulations that permit markets to function optimally for human well-being while still respecting individual freedom. Second, any economy must see to it that no one is deprived of essential goods or services because of not having sufficient capital. However the economy operates, it must have in place a means whereby the community can guarantee that a person’s basic material needs are satisfied.
One of the dangers in modern times is that market forces are being extended into areas of life where they do not belong. Just as the extension of government into all realms of social existence violates the principle of subsidiarity so, too, something similar can be said about economic markets. It is important that social groupings of family, church, neighborhood, fraternal and sororal clubs, recreational and educational organizations and the like should function by their own logic and ethos, not that of the market.