Competitive capitalism does help support personal freedom but must still be judged by results.

The former bishop of Durham, Dr David Jenkins, was often in the news for two reasons. The first was his scepticism about the literal interpretation of the Scriptures. The second was his unremitting hostility to the policies of Margaret Thatcher, which he does not believe have been sufficiently repudiated by Tony Blair. His critics could scarcely conceal their delight when one of the transepts of Durham Cathedral was gutted by fire a few days after his inauguration. Those who thought that this was an act of divine retribution would have benefited by reading the famous essay on alleged miracles by the 18th century philosopher David Hume.

It always seemed to me that many of the attacks on the theological views were unfair. His essential point was that "there are no knockdown miracles which prove to everybody that God is around." It is understandable that fundamentalists should have been outraged. But I had the feeling, even at the time, that many of the attacks on him came from people who rarely went near a church and who used his theological modernism mainly as a pretext to brush aside his views on government policy.

He has now returned to the attack on the economic front in a new book, Market Whys and Human Wherefores, (Cassell, è16.99). It is admirable that the bishop, who retired in 1994, should have devoted his time to studying the economics of markets, not only as explained in books, but actually bothering to read a great many not immediately attractive daily reports about specific financial markets.

With a nice sense of irony he remarks that a bishop might be just the person to undertake this inquiry. For he "is by professional training well initiated into the high priestly traditions of professional and sacred secrets - revelations which the ordinary faithful cannot be expected to understand."

It is hardly surprising that his original views emerge reinforced. But at least he has tried to come to grips with his critics. I admit to a personal bias in favour of the bishop's work. He has not only bothered to read a book of my own (Capitalism with a Human Face) but has taken seriously its arguments. Such treatment from someone on the other side of the fence is worth bookshelves of so-called praise from people who simply include one with long lists of other authors and who do not bother to notice what is different about what one is saying.

Like many opponents of markets Dr Jenkins focuses on financial ones. There is a difficulty here. The fundamental case for markets is still that of Adam Smith's baker who in the course of pursuing his own interests also provides us with our daily bread. The opponents focus on the billions of dollars "sloshing" through the world financial markets.

Ultimately there must be some connection between the two. These financial instruments would not exist if someone - say the supplier of baking machinery or the banker of this supplier - did not wish to insure against fluctuations in exchange rates, interest rates, commodity prices or the like. But the chain of events is a long one. And it is best to concede that there has been no thoroughgoing analysis of the welfare effects of modern financial markets. This is not sufficient to condemn them.

My own guess is that they are not nearly as important as either their proponents or their opponents suppose. Let us take someone who borrows from a financial institution to engage in a speculation. His asset is balanced by his liability to the lender. When all such liabilities and assets are cancelled out we are left with real structures such as factories and raw material stocks and those who own the equity in them - as was the case in Adam Smith's time.

The systemic danger arises not from derivatives or any other particular kind of financial asset, but from the excessive leverage exercised on borrowed money. It is an open question whether it is either desirable or practical to do anything about such borrowing. The general case for markets governed by the rule of law does not depend on the answer to it.

The bishop reminds us of the usual estimates showing that very short term transactions on the foreign exchange markets far outweigh the amounts directed to the finance of trade. But this cuts both ways. The financial transactions soon cancel each other out. The ones for trade or genuine capital investment do not. In most of the cases where speculators appear to have brought down currencies, whether it was George Soros and sterling's departure from the Exchange Rate Mechanism in 1992 or the Latin American or Asian crises in the emerging markets, currencies were overvalued or artificially maintained.

The bishop focuses on the remarks that I have made that the beneficial effects of the market system are not something that are susceptible to mathematical proof or near-final scientific testing, but have to be justified in terms of results. If some more far-going market exponents regard this as giving the game away, so be it.

There is no dispute between the bishop and myself that in the end market capitalism has to be judged by its ability to deliver. Dr Jenkins himself agrees that the market system provided for an unparalled increase in human prosperity in the 19th century and then again in what he calls a golden interlude between the end of 1945 and the early 1970s. But he thinks that this ability crumbled in the 1970s.

His particular targets are the fate of the poorer countries and the poor in the west. Yet a glance at the tables in the World Bank's Development Report shows that, despite all the booms and busts and speculative orgies, over a decade or two the emerging world has gained. Consumption per head in low income countries rose by an average of 3.7 pc pa. in the period 1980-97. It rose in every region except sub-Saharan Africa and rose most rapidly in the East Asian and Pacific countries, which were the ones that did most to open up their economies. Other more direct indices of welfare such as expectation of life, literacy and infant mortality also improved.

This does not mean that all the policies urged on these countries by the International Monetary Fund were right. Many pro-market enthusiasts would emphatically agree with Dr. Jenkins that too many of the Fund's rescue operations bailed out western financial institutions who had made unwise investments. My inclination is to say that both sides might be better off if left to their own devices.

A few misunderstandings arise because the author runs together remarks about mainstream academic economics with the case for market capitalism. Mainstream economists have in several surveys indicated support for prices and markets on the assumption that adverse effects on income distribution can be corrected by the tax and social security system.

Most of the economists in question were emphatic that they were not signing up to any laissez-faire manifesto. They were doing two things. They were saying that the price mechanism could be used not only in properly working markets, but to correct the effects of badly working ones. A topical example is congestion taxes for cars taken into cities proposed by John Prescott, which Conservatives are quite wrongly opposing.

There are some over-the-top economic pundits who believe that globalised markets will not allow fiscal correctives. But where is the evidence? Globalisation is too often invoked on all sides of the political spectrum as an excuse for not putting one's hands into one's own pockets to help the poor or the victims of change.

It is true that in a globalised world it is difficult to tax effectively mobile factors of production. But as Dr Jenkins is glad to note in other contexts, most workers are not that mobile. Another non-mobile factor of production is land, which classical economists have wanted to tax from Ricardo onwards. It is difficult to tax pure space without discouraging enterprising development, but the attempt will probably have to be made again.

What he finds disappointing or disquieting are my throwaway remarks directed against piety or moralists or my quotations of Dr Johnson's celebrated saying: "A man is rarely more harmlessly employed than when engaged in making money." I am sure that the bishop knows enough about human nature to appreciate that many apparently flippant or cynical remarks hide much deeper convictions. I would probably have made myself clearer if I had quoted instead the dictum of Keynes: "It is better that a man should tyrannise over his bank balance than over his fellow men."

In the end the bishop does unearth my remarks about the harm and suffering inflicted by those who have tried to impose their own values on their fellow men. I am castigated for saying that I am more afraid of the Grand Inquisitor than I am of the failures and imperfections of real world markets. He thinks that what one is more afraid of should not be a basis for policy. Here we probably have to agree to differ.