The Dow plunges 936 points in one surreal day of panicked trading—and then drops some more. Surging home foreclosures threaten to swamp the formerly high-flying financial industry, which meekly submits to new strictures accompanying an unprecedented bailout from Uncle Sam. Twelve million mortgage holders suddenly owe more than their homes are worth.

One man in a Chicago suburb fell behind because of health problems. Unable to pay his $729,000 mortgage, he finally sold the house—for $450,000. "I kept hoping the market would level off," he told the Chicago Tribune. "I never imagined this would happen."

The painful economic crisis is forcing all of us to rethink our assumptions. Home buyers—some of whom borrowed more than they could reasonably expect to pay back, others of whom got caught up in forces they never expected—are rethinking the supposed stability of real estate. Lenders, guilty of what one financial journalist pegged as "breathtaking corruption," are rethinking acceptable sales practices. Politicians, who loosened lending standards and removed long-standing barriers to irresponsible risk taking, are rethinking their oversight role.

Economists, for their part, are rethinking the balance between free enterprise and government regulation. Irwin Stelzer, director of economic policy studies at the Hudson Institute, calls the emerging consensus the "new capitalism," an approach that rejects excessive risk and emphasizes social justice in areas such as executive compensation.

So is capitalism dead? Probably, if by capitalism we mean the ugly rush to profit at any cost that we have seen of late. But reports of the death of capitalism, which has brought more wealth to more people than any system in history, ...

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